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When carve-out financial statements include entities under common control, a question arises related to conforming accounting policies.
Subsidiaries of a common parent generally have similar accounting policies; however, US GAAP does not require them to be the same. Therefore, in a common control transaction, the receiving entity and the transferring entity may have differing accounting policies. For instance, one entity may apply last-in, first-out for inventory while the other uses a different method for similar types of inventory. ASC 805-50-30-6 describes the accounting when this occurs.

ASC 805-50-30-6

In such circumstances, the carrying amounts of the assets and liabilities transferred may be adjusted to the basis of accounting used by the receiving entity if the change would be preferable. Any such change in accounting method shall be applied retrospectively, and financial statements presented for prior periods shall be adjusted unless it is impracticable to do so. Section 250-10-45 provides guidance if retrospective application is impracticable.

If the receiving entity’s method is not preferable, the receiving entity may account for the transferred assets and liabilities under the transferring entity’s existing accounting method. Alternatively, if either the transferring entity or receiving entity were to change its accounting policy, it must be preferable.
For more on conforming accounting policies for entities under common control, see BCG 7.2.3.8.
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