Universal Journal of Accounting and Finance Vol. 11(1), pp. 1 - 8
DOI: 10.13189/ujaf.2023.110101
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The Dilemma: Push-Down Accounting and the Conceptual Framework of Financial Accounting: A Case of Contradictions between Relevance and Reliability

Khalid Al-Adeem ^*
College of Business Administration, King Saud University, Saudi Arabia

ABSTRACT

While some accountants are against using push-down accounting to prepare separate financial statements, others argue that it provides a suitable measurement. Authorities in the United States have issued rules and statements specifying where this practice could be applied. The opponents argue that, first, financial statements using push-down accounting could mislead some users due to the changes in the bases for valuation of the assets and liabilities of the acquired company. Second, the comparability property of the financial statements is lost. Third, the entity assumption is violated. On the other hand, the proponents state that push-down accounting allows providing relevant information to the stakeholders. That is, financial statements are based on current prices reflecting the real financial standing of the subsidiary. To them, an acquisition is a complete transaction and therefore, its impact must be reflected in the financial statements. Finally, they state that push-down accounting is a welcomed practice in many countries except in the United States. This article presents arguments to address some of these concerns. The variation of bases that occurs when push-down accounting is applied, additional information based on the historical cost model can be disclosed with the published financial statements to assist the stakeholders in making their decisions. The argument regarding the violation of the entity assumption is valid when accounting for a business combination is pushed down in corporate reporting. Additionally, since the external party's valuation is deemed to be evidence of the new value of the proportion of the acquired assets and liabilities, the parent company when applying push-down accounting provides a new value to a significant portion of the subsidiary. Using push-down accounting breaches the conceptual framework, which operates as the constitution of financial accounting for business enterprises, which weighs reliability more than relevance of information characteristics. While combining 'reliability' and 'relevance' is impossible, a tradeoff between them must be found.

KEYWORDS
Push-Down Accounting, Conceptual Framework, Corporate Reporting, Measurement, Relevance, Reliability

Cite This Paper in IEEE or APA Citation Styles
(a). IEEE Format:
[1] Khalid Al-Adeem , "The Dilemma: Push-Down Accounting and the Conceptual Framework of Financial Accounting: A Case of Contradictions between Relevance and Reliability," Universal Journal of Accounting and Finance, Vol. 11, No. 1, pp. 1 - 8, 2023. DOI: 10.13189/ujaf.2023.110101.

(b). APA Format:
Khalid Al-Adeem (2023). The Dilemma: Push-Down Accounting and the Conceptual Framework of Financial Accounting: A Case of Contradictions between Relevance and Reliability. Universal Journal of Accounting and Finance, 11(1), 1 - 8. DOI: 10.13189/ujaf.2023.110101.