AICPA Releases Inquiries on Public Business Entities Meeting GAAP

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The American Institute of CPAs (AICPA) has released a question-and-answer form that is intended to help tax preparers and other practitioners determine if their organization or a client’s is a public business entity under the updated generally accepted accounting principles (GAAP).

“Making a determination as to whether you are a [public business entity (PBE)] or not is an important business consideration,” said Matthew Schell, a Crowe Horwath national office partner who directed development of the report for the AICPA’s Financial Reporting Executive Committee, in a prepared statement. “PBE status means an entity must comply with the Financial Accounting Standard Board’s accounting standards, with implementation dates for several — including revenue recognition and lease accounting — just around the corner. Entities that are not PBEs, however, can take advantage of certain scaled disclosures and other accommodations, such as using Private Company Council-driven or other non-PBE accounting alternatives.”

In accordance with Financial Accounting Standards Board’s (FASB) Accounting Standards Update (ASU) No. 2013-12, Definition of a Public Business Entity—An Addition to the Master Glossary, the FASB Accounting Standards Codification (ASC) glossary was amended in 2013 to include one definition of PBE in future use of accounting principles.

“The AICPA recognized a need to help financial professionals answer difficult questions related to the updated definition,” said Jason Brodmerkel, AICPA staff leader of the Depository Institutions Expert Panel, in a prepared statement. “The importance of organizations getting this right in such a dynamic atmosphere is key. Our efforts have included working hand in hand with many experts with a goal of helping professionals avoid costly implementation issues that could arise if entities misinterpret PBE status.”

Download the full question and answer in the link at the top of this article. The questions were identified by staffers on the AICPA Technical Hotline and other people at the institute. The AICPA cautions that answers have not been approved, disapproved or otherwise acted upon by any senior committee. Practitioners with specific questions about this information should contact the AICPA’s Technical Hotline.

Here’s a snapshot of the questions addressed since June, broken down by auditing and accounting:

Auditing

  • Section 9160.31, "Following Accounting Standards as Promulgated by FASB by a State or Local Governmental Entity" (Issue Date: July 2017) How should an auditor determine whether an entity (or component thereof, such as a component unit) is a state or local government for purposes of determining whether the entity is following the appropriate accounting standards?
  • Section 9160.32, "Reporting on Accounting Standards as Promulgated by FASB by a State or Local Government" (Issue Date: July 2017) An entity (or a component thereof, such as a component unit) that meets the definition of a state or local government prepares its financial statements in accordance with accounting standards as promulgated by FASB. How should an auditor report on such financial statements?
  • Section 9160.33, "Engagement Acceptance When a State or Local Government Elects to Follow a Special Purpose Framework" (Issue Date: July 2017) An entity (or a component thereof) that meets the definition of a state or local government elects to prepare its financial statements in accordance with a special purpose framework (SPF). What are the auditor’s responsibilities concerning the acceptability of the SPF used by management?
  • Section 9160.34, "Accounting Standards as Promulgated by FASB as a Special Purpose Framework" (Issue Date: July 2017) An entity (or a component thereof) that meets the definition of a state or local government elects to prepare its financial statements in accordance with accounting standards as promulgated by FASB. Because the appropriate accounting standards are those promulgated by GASB, can the accounting standards as promulgated by FASB be considered a special purpose framework?
  • Section 9160.35, "Reporting on Indian Tribe Financial Statements Prepared in Accordance With Accounting Standards as Promulgated by FASB" (Issue Date: July 2017) An Indian tribe (or a component thereof, such as a business component functioning like a commercial entity) that meets the GAAP definition of a state or local government prepares its financial statements in accordance with accounting standards as promulgated by FASB. In such situations, may an auditor report on whether the entity’s financial statements are presented, in all material respects, in accordance with both the appropriate GAAP framework (that is, accounting standards as promulgated by GASB) and accounting standards as promulgated by FASB?

Accounting

  • Section 7000.01, “Use of the Term “Security” in the Definition of a Public Business Entity. The FASB ASC glossary definition of a PBE uses the term “security.” ASU No. 2013-12 does not reference a specific definition of “security.” How should entities evaluate whether their financing instruments are securities?
  • Section 7000.02, Types of Securities Included in the Definition of a Public Business Entity. The FASB ASC glossary definition of a PBE uses the term “security.” Are all forms of securities included or only certain forms (for example, equity securities) included?
  • Section 7000.03 Use of the Term “Over-the-Counter Market” in the Definition of a Public Business Entity. Criterion (d) of the FASB ASC glossary definition of a PBE states that a business entity (an entity other than a not-for-profit entity within the scope of FASB ASC 958, Not-for-Profit Entities, or an employee benefit plan accounted for under FASB ASC 960, Plan Accounting—Defined Benefit Pension Plans; FASB ASC 962, Plan Accounting—Defined Contribution Pension Plans; or FASB ASC 965, Plan Accounting—Health and Welfare Benefit Plans) that “has issued, or is a conduit bond obligor for, securities that are traded, listed, or quoted on an exchange or an over-the-counter market” is a PBE. How should an entity evaluate whether its securities (or securities for which it is a conduit bond obligor) meet this criterion?
  • Section 7000.04, Use of the Term “Conduit Bond Obligor” in the Definition of a Public Business Entity. What is the meaning of the term “conduit bond obligor” within the FASB ASC glossary definition of a PBE? Are all entities that are conduit bond obligors considered PBEs?
  • Section 7000.05, FINRA TRACE and MSRB EMMA Data and a Public Business Entity. Are the Financial Industry Regularity Authority (FINRA) Trade Reporting and Compliance Engine (TRACE) or Municipal Securities Rulemaking Board (MSRB) Electronic Municipal Market Access (EMMA) considered OTC markets? Should financial statements available in EMMA be considered under criterion (e) of the FASB ASC glossary definition of a PBE?
  • Section 7000.06, Use of the Phrase “Contractual Restriction on Transfer” and a Public Business Entity. Criteria (c) and (e) within the FASB ASC glossary definition of a PBE use the phrase “contractual restriction on transfer;” what types of restrictions would be included?
  • Section 7000.07, Use of the Terms “Prepare,” “Publicly Available,” “Financial Statements,” and “Periodic Basis” in the Definition of a Public Business Entity. Criterion (e) within the FASB ASC glossary definition of a PBE uses the terms “prepare,” “publicly available,” “financial statements,” and “periodic basis.” How are each of those defined?
  • Section 7000.08, Application of the Definition of a Public Business Entity When Entities are Organized in Tiered Organizational Structures (Parent, Consolidated Subsidiaries, Nonconsolidated Entities, Guarantors, Equity Method Investees). Should the FASB ASC glossary definition of a PBE be applied on an entity-by-entity basis, or should entities look through, or evaluate the organizational structure in totality, when applying the definition of a PBE?
  • Section 7000.09, Financial Statements or Financial Information Filed With the SEC and Considerations for Effective Dates and the Definition of a Public Business Entity. Are there any effective date accommodations available to PBE entities that otherwise would not meet the definition of a PBE, except for a requirement to include or the inclusion of its financial statements or financial information in another entity’s filing with the SEC?
  • Section 7000.10, Accounting Standard Update Effective Dates and the Definition of a Public Business Entity. Do non-PBEs always receive deferred effective dates?
  • Section 7000.11, Evaluating the Definition of Public Business Entity for Financial Institutions Subject to Section 36 of the Federal Deposit Insurance Act and Part 363 of the FDIC Rules and Regulations. Is a financial institution subject to the Federal Deposit Insurance Corporation Improvement Act (FDICIA) always a PBE?
  • Section 7000.12, Mutual Depository Institutions and the Definition of a Public Business Entity. Does the FASB ASC glossary definition of a PBE affect entities such as credit unions or mutual thrifts?
  • Section 7000.13, Brokered Certificates of Deposit and the Definition of a Public Business Entity. How would a brokered certificate of deposit (CD) be evaluated under the FASB ASC glossary definition of a PBE?
  • Section 7000.14, Private Resales (Rule 144 and Rule 144A) and the Definition of a Public Business Entity. How are private resales under SEC Rules 144 or 144A (Rule 144 and Rule 144A securities) analyzed under the FASB ASC glossary definition of a PBE? 
  • Section 7000.15, Insurance Companies and the Definition of Public Business Entity. Is an insurance entity considered a PBE under the FASB ASC glossary definition?
  • Section 7000.16, Brokers, Dealers, and Futures Commission Merchants and the Definition of a Public Business Entity. Is a broker, dealer, or future commission merchant considered a PBE?

About Terry Sheridan

Terry Sheridan

Terry Sheridan is an award-winning journalist who has covered real estate, mortgage finance, health care, insurance, personal finance, and accounting and taxation issues for newspapers, magazines, and websites. A Chicago native and former South Florida resident, she now lives in New England.

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