PUSH DOWN ACCOUNTING: A CONCEPTUAL ANALYSIS OF ITS THEORETICAL IMPLICATION

The primary purpose of this study was to investigate the theoretical validity of push down accounting. The Securities and Exchange Commission requires this accounting technique for all registrants, but the accounting profession has issued no authoritative pronouncement on the subject. Push down accounting requires that the parent's purchase price as established by an acquisition be recorded on the books of the subsidiary, thereby establishing a new basis of accounting for the subsidiary. The premise of this study was that before specific implementation guidelines are developed, the fundamental theoretical validity of push down accounting should be evaluated.;Push down accounting was analyzed in relation to several key components of current generally accepted accounting principles: the historical cost concept, the ownership equity theories, and an assessment of how financial statements prepared using push down accounting meet the needs of the users. Push down accounting was shown to be defensible under the historical cost concept and the proprietary theory of owners' equity. It was concluded that push down accounting enhances most of the qualitative characteristics listed by the FASB in its Conceptual Framework project. Although the establishment of a new basis of accounting detracts from consistency and comparability, additional disclosures could overcome this obstacle.;Financial databases were searched to determine how push down accounting is being applied in practice. Several practical problems that arise with implementation of push down accounting were addressed in this study.;Push down accounting was found to be consistent with the existing conceptual framework of accounting. It was therefore recommended that the FASB take action soon to eliminate the diversity that currently exists between SEC registrants and nonregistrants. Guidelines should also be issued to quantify the percentage change in ownership that triggers push down accounting. The recommended guideline in this study is a 97 percent change in ownership, with flexibility to adjust this benchmark as needed on a case by case basis.