FASB Issues Proposal to Define Public Business Entity
by Terri Eyden on
By Jason Bramwell
A proposal that defines a public business entity was issued by the Financial Accounting Standards Board (FASB) on August 7.
The FASB is encouraging stakeholders to review and provide comments on the proposal by September 20.
The purposes of the proposal – Definition of a Public Business Entity: An Amendment to the Master Glossary –are to:
- Amend the master glossary of FASB Accounting Standards Codification® to include one definition of a public business entity for use in US Generally Accepted Accounting Principles (GAAP), and
- Identify the types of organizations that would be excluded from the scope of FASB's draft Private Company Decision-Making Framework: A Guide for Evaluating Financial Accounting and Reporting for Private Companies once it is finalized.
The decision-making framework will aid the FASB and the Private Company Council (PCC) in identifying opportunities to enhance the relevance of accounting standards to users as well as to reduce the cost and complexity of preparing private company financial statements in accordance with US GAAP. The framework is expected to be issued by the end of the summer.
The proposal would not affect existing requirements, according to the FASB.
The definition of a public business entity would be used by the FASB, the PCC, and the Emerging Issues Task Force in specifying the scope of future accounting and reporting guidance.
Public business entities, as well as not-for-profit organizations and employee benefit plans within the scope of FASB Accounting Standards Codification Topics 960 through 965 on plan accounting, would be excluded from the scope of the decision-making framework.
Organizations that are within the scope of the framework are those for which the PCC and the FASB would consider potential accounting and reporting alternatives within US GAAP.
Stakeholders provided feedback about the inconsistency and complexity of having multiple definitions of a nonpublic entity and public entity within US GAAP. Stakeholders specifically asked that the FASB clarify which nonpublic entities would potentially qualify for alternative accounting and reporting guidance.
The proposed update would help address those issues by proposing a definition of a public business entity.
Criteria of a Public Business Entity
According to the FASB, the proposed amendments would define a public business entity as an organization that meets any one of the following criteria:
- It is required by the US Securities and Exchange Commission (SEC) to file or furnish financial statements, or does file or furnish financial statements, with the SEC (including other entities whose financial statements or financial information are required to be or are included in a filing).
- It is required by the Securities Exchange Act of 1934, as amended, or rules or regulations promulgated under the Act, to file or furnish financial statements with a regulatory agency.
- It is required to file or furnish financial statements with a regulatory agency in preparation for the sale of securities or for purposes of issuing securities.
- It has (or is a conduit bond obligor for) unrestricted securities that are traded or can be traded on an exchange or an over-the-counter market.
- Its securities are restricted, and it is required to provide US GAAP financial statements to be made publicly available on a periodic basis pursuant to a legal or regulatory requirement.
This excludes not-for-profits or employee benefit plans within the scope of Topics 960 through 965 on plan accounting.
- FASB and PCC Finalize GAAP Framework for Private Companies
- FASB Seeks More Feedback on Decision-Making Framework