The Financial Accounting Standards Board issued for public comment Wednesday a proposal that would define a public business entity and affect which types of businesses might qualify for alternative accounting and reporting guidance as private companies.
The purposes of the proposal are to amend the Master Glossary of the FASB Accounting Standards Codification to include one definition of a public business entity for use in U.S. GAAP and to identify the types of organizations that would be excluded from the scope of FASB’s draft Private Company Decision-Making Framework once it is finalized. FASB and its sister organization, the Private Company Council, voted to finalize the framework last month, but it has not yet been finalized (see FASB Votes to Finalize Private Company Framework). A final version of that framework is expected to be issued in early September.
FASB noted that the proposal would not affect existing requirements. The definition of a public business entity would be used by FASB, the Private Company Council and the Emerging Issues Task Force in specifying the scope of future accounting and reporting guidance.
FASB received inquiries about which types of organizations should be within the scope of the draft Private Company Decision-Making Framework guide once it is finalized. The guide outlines criteria for FASB and the PCC to use in determining whether and under what circumstances it is appropriate to adjust financial reporting requirements for private companies following U.S. GAAP. Stakeholders asked FASB to 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.