No. 2013-29
8 August 2013
To the Point
FASB — proposed guidance
FASB proposes new definition of
a public company for future
standard setting
The Codification
would continue to
contain multiple
definitions of public
and nonpublic
entities.
What you need to know
• The FASB has proposed a single definition of a public company.
• This definition would be used by the FASB to set the scope of future standards and to
determine which entities would be eligible to use any alternatives under US GAAP that
the Private Company Council and the FASB approve for private companies.
• Comments are due by 20 September 2013.
Overview
The Financial Accounting Standards Board (FASB or Board) has proposed a single definition of
a public company, referred to in the proposal as a public business entity (PBE), that would be
used to distinguish between different types of entities in future standard setting. It would not
replace existing definitions in the Accounting Standards Codification.
If the proposed definition is approved, the Codification would continue to include numerous
definitions of a nonpublic entity and of a public entity (and related terms such as publicly
traded company). The new PBE definition would be used going forward.
The proposed definition also would determine which entities are eligible to use any alternatives
under US GAAP that the Private Company Council (PCC) and the FASB approve for private
companies (referred to in recent proposals as nonpublic entities). The FASB recently sought
comment on three alternatives proposed by the PCC involving accounting for identifiable
intangible assets, goodwill and certain receive-variable, pay-fixed interest rate swaps. The
FASB also endorsed a fourth alternative for private companies under US GAAP proposed by
the PCC related to the consolidation of common control leasing arrangements.
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A public company
Under the proposed definition, a PBE would be an entity that meets any of the following criteria:
•
It is required by the 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
•
It has securities that are unrestricted, 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
The Board decided not to designate not-for-profit entities (NFPs) and employee benefit plans
as either public or nonpublic. Instead, the Board would consider whether all or certain NFPs
should be permitted to apply any accounting and reporting alternatives under US GAAP it
approves for private companies.
While the FASB is not proposing to modify the existing definitions of a nonpublic entity at this
time, it has said it will consider consolidating these definitions in a second phase of the project.
How we see it
• While the definition may appear straightforward, companies should carefully consider
all of their reporting requirements and how the criteria might apply (e.g., if they file
periodic reports with an industry regulator).
• The definition, which generally will be used in the future, would provide a starting point
for discussions about the scope for any alternatives developed for private companies,
but the PCC and the FASB still would have leeway to determine which entities could
use them. For example, the PCC and the FASB have already proposed that financial
institutions not be allowed to use the proposed alternative related to interest rate swaps.
What’s next
Comments are due 20 September 2013. The FASB hopes to have comment letter feedback
on the definition of a PBE available at the October PCC meeting.
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2 | To the Point FASB proposes new definition of a public company for future standard setting 8 August 2013