The Financial Accounting Standards Board and the Private Company Council have issued the final version of their Private Company Decision-Making Framework: A Guide for Evaluating Financial Accounting and Reporting for Private Companies to help FASB and the PCC determine whether and when to provide alternative recognition, measurement, disclosure, display, effective date or transition guidance for private companies reporting under U.S. GAAP.
FASB also issued FASB Accounting Standards Update No. 2013-12, Definition of a Public Business Entity: An Addition to the Master Glossary, which will be used by FASB, the PCC, and the Emerging Issues Task Force to determine the scope of new accounting and reporting guidance and to identify the types of companies that are excluded from the scope of the guide.
“The guide and the definition of a public business entity are integral parts of the FASB and the PCC’s ongoing commitment to better serve the needs of both users and preparers of private company financial statements,” said FASB chairman Russell G. Golden in a statement. “The guide will help the FASB and the PCC identify opportunities for private companies to reduce the complexity and costs of preparing financial statements in accordance with U.S. GAAP. Defining a public business entity will help clarify the guide’s scope, while also addressing stakeholder concerns with the inconsistency and complexity of having multiple definitions of nonpublic entity’ and public entity’ within GAAP.”
The guide will be used by the board and the PCC, along with the existing FASB conceptual framework for financial reporting, in making user-relevance and cost-benefit evaluations for private companies. It describes five significant factors that differentiate the financial reporting considerations of private companies from public companies: the number of primary financial statement users and their access to management, the investment strategies of primary users, the ownership and capital structures, accounting resources, and the manner in which preparers learn about new financial reporting guidance.
“The guide is intended to assist the PCC in identifying alternatives to U.S. GAAP based on the needs of users and preparers of private company financial statements,” PCC chairman Billy M. Atkinson said in a statement. “It should ensure that the quality of reported information remains high for the benefit of all private company stakeholders and our capital markets.”
The guide also sets forth five areas (known as modules) where financial accounting and reporting guidance might differ for private and public companies: recognition and measurement, disclosures, display (presentation), effective dates, and transition method.
The Definition of a Public Business Entity amends the Master Glossary of the FASB Codification to include one definition of public business entity for future use in U.S. GAAP. The definition does not affect existing requirements.
An assessment of whether an organization is a public business entity is based on meeting any one of several criteria including whether the entity is required to file or furnish financial statements, or file or furnish financial statements (including voluntary filers) with the U.S. Securities and Exchange Commission, or has securities that are traded, listed, or quoted on an exchange or an over-the-counter market.
FASB expects to issue final Accounting Standards Updates on the first two PCC consensuses—on accounting for goodwill and on the simplified hedge accounting approach for certain interest rate swaps—in January 2014.
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