Monday January 13 2014
We are glad to receive reports from Resources Global Professionals. Here is their latest on Private Company Reporting
Dennis Elam
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The Financial Accounting Standards Board (FASB), in conjunction with the Private Company Council (PCC), recently finalized the Private Company Decision-Making Framework: A Guide for Evaluating Financial Accounting and Reporting for Private Companies (the Guide). In addition, the FASB also issued ASU 2013-12, Definition of Public Business Entity: An Addition to the Master Glossary.
Private Company Decision-Making Framework (the Guide)
The PCC was established in May 2012 by the Financial Accounting Foundation (FAF), which is the FASB's parent organization, with the mission of improving accounting standards for private companies applying U.S. GAAP. To facilitate their examination of U.S. GAAP and identify areas where standards should be modified to better address the needs of private company financial statement users, a framework was created to guide their discussion. The framework was exposed for public comment in 2012 and recently finalized. The Guide is intended to help the FASB and PCC determine whether and to what extent U.S. GAAP should be modified as to implementation timing, method, or other requirements for non-governmental private companies, with the goal of reducing complexity and cost for these companies while meeting the different informational needs of their financial statement users. Obviously, one of the critical decisions with regard to the Guide is to whom any separate guidance issued applies, which is the subject of the next topic "Definition of a Public Business Entity".
Definition of a Public Business Entity
The FASB's revised definition of a public business entity is intended to eliminate the current inconsistencies and complexity of multiple definitions of "private", "nonpublic" and "public" within U.S. GAAP, which will also help clarify the types of organizations excluded from the scope of the Guide mentioned above. The definition does not affect existing requirements but will apply to new guidance as it is issued.
A business entity (which excludes not-for-profits and employee benefit plans) is considered to be a public business entity if any of the following criteria are met:
a) It files or furnishes financial statements with the U.S. Securities and Exchange Commission (SEC), whether required or not, which includes voluntary filers and those whose information is included in another entity's filings.
b) It is required by the Securities Exchange Act of 1934 to file or furnish financial statements with a regulatory agency other than the SEC.
c) It is required to file or furnish financial statements with a regulatory agency (foreign or domestic) in preparation for the sale of or for purposes of issuing securities that are not subject to contractual restrictions on transfer.
d) It has (or is a conduit bond obligor for) securities that are traded, listed, or quoted on an exchange or an over-the-counter market.
e) Its securities are not subject to contractual restrictions on transfer, and it is required to prepare U.S. GAAP financial statements and make them publicly available on a periodic basis, pursuant to a legal, contractual, or regulatory requirement. An entity must meet all those conditions to meet criterion (e).
It is anticipated that the first guidance to be issued using the new terminology of public business entity, expected in January 2014, will be the final Accounting Standards Updates on the first two PCC consensuses: 1) accounting for goodwill and 2) the simplified hedge accounting approach for certain interest rate swaps.
A news release on the Guide and definition of a public business entity can be seen on the FASB website by clicking here.
Professor Elam 