FASB Aims to Define Public Business Entities

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Information about FASB Aims to Define Public Business Entities

Published on September 20, 2013

Author: MHMPC

Source: slideshare.net

Description

On August 7, 2013, the Financial Accounting Standards Board (FASB) issued a proposed Accounting Standards Update (ASU) that defines a public business entity. According to FASB, the definition would affect which types of entities would qualify for alternative accounting and reporting guidance under U.S. GAAP as private companies.

Under this proposal, which was released for public comment, not-for-profits (NFPs) and employee benefit plans within the scope of ASC Topics 960 through 965 would not be considered by FASB to be public business entities for purposes of future standard setting.

The proposal is aimed at amending the FASB’s Accounting Standards Codification Master Glossary to include a single definition of a public business entity for use in U.S. GAAP, as well as identify the types of organizations that would be excluded from the scope of FASB’s draft Private Company Decision-Making Framework. Currently, the glossary contains multiple definitions for the terms “public entity” and “nonpublic entity.”

September 2013 FASB Aims to Define Public Business Entities By Gina Sapia, CPA On August 7, 2013, the Financial Accounting Standards Board (FASB) issued a proposed Accounting Standards Update (ASU) that defines a public business entity. According to FASB, the definition would affect which types of entities would qualify for alternative accounting and reporting guidance under U.S. GAAP as private companies. Under this proposal, which was released for public comment, not-for-profits (NFPs) and employee benefit plans within the scope of ASC Topics 960 through 965 would not be considered by FASB to be public business entities for purposes of future standard setting. About The Proposal The proposal is aimed at amending the FASB’s Accounting Standards Codification Master Glossary to include a single definition of a public business entity for use in U.S. GAAP, as well as identify the types of organizations that would be excluded from the scope of FASB’s draft Private Company Decision-Making Framework. Currently, the glossary contains multiple definitions for the terms “public entity” and “nonpublic entity.” In July, FASB and the Private Company Council (PCC) voted to finalize the framework. The final version is anticipated in September. During the framework development process, FASB received inquiries regarding which types of organizations would fall within the scope of the Private Company Decision-Making Framework guide. This resource outlines the criteria FASB and the PCC should use when determining whether it is appropriate to adjust financial reporting requirements for private companies following U.S. GAAP. An update to the Master glossary that includes a single definition for public business entity would provide an answer. It is important to note that the proposed update would not affect existing U.S. GAAP requirements. According to FASB, the public business entity definition “would only be used by FASB, the PCC and the Emerging Issues Task Force to determine the scope of future accounting standards.” According to the proposal, a public business entity is one that meets any of the following criteria: • It is required by the 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 unrestricted, and it is required to provide U.S. GAAP financial statements to be made publicly available on a periodic basis pursuant to a legal or regulatory requirement. Why Does the Definition Matter? In the past, most NFPs have been granted the same accounting and reporting alternatives within U.S. GAAP as nonpublic companies. However, if a NFP had public debt securities, including conduit debt, they weren’t automatically granted the same alternatives. FASB’s ASU would initially exclude all NFPs from the definition of a public business entity, and then instead a variety of factors would be considered on a standard-by-standard basis to determine whether “all, none, or only some NFPs will be eligible for alternatives within GAAP for private companies.” This proposal is good news for NFPs. Having to adhere to the public business entity reporting and disclosure rules could have added more burden to the organizations. However, based on the public entity criteria, organizations with conduit debt will still be considered public entities and subject to the related GAAP. Comments regarding the proposed ASU are being accepted until September 20, 2013. If you have any questions on the proposed ASU in the meantime, please contact your local MHM office. Copyright © 2013. Mayer Hoffman McCann P.C. All rights reserved. Contents of this publication may not be reproduced without the express written consent of MHM. Mayer Hoffman McCann P.C. is an independent CPA firm providing audit, review and attest services, and works closely with CBIZ, a business consulting, tax and financial services provider.

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