News Release 12/23/13
FASB AND PCC ISSUE PRIVATE COMPANY FRAMEWORK; FASB ISSUES DEFINITION OF PUBLIC BUSINESS ENTITY
Known informally as the Guide, the Private Company Decision-Making Framework is intended to assist the FASB and the PCC in determining whether and when to provide alternative recognition, measurement, disclosure, display, effective date, or transition guidance for private companies reporting under U.S. generally accepted accounting principles (GAAP).
Norwalk, CT, December 23, 2013—The Financial Accounting Standards Board (FASB) and the Private Company Council (PCC) today issued the final Private Company Decision-Making Framework: A Guide for Evaluating Financial Accounting and Reporting for Private Companies. The FASB also issued FASB Accounting Standards Update No. 2013-12, Definition of a Public Business Entity: An Addition to the Master Glossary.
The Definition of a Public Business Entity will be used by the FASB, the PCC, and the Emerging Issues Task Force (EITF) 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. “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.”
PCC Chairman Billy M. Atkinson said: “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. 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 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.
These factors are:
- 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.
- Recognition and measurement
- Display (presentation)
- Effective dates, and
- Transition method.
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.
More information on the Guide and the Definition of a Public Business Entity, including a video and FASB In Focus, is available on the FASB website and on the PCC website.
The 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.
About the Private Company Council (PCC)
The PCC determines alternatives to existing nongovernmental U.S. GAAP to address the needs of users of private company financial statements, based on criteria mutually agreed upon by the PCC and the FASB. Before being incorporated into U.S. GAAP, PCC recommendations will be subject to a FASB endorsement process. The PCC also serves as the primary advisory body to the FASB on the appropriate treatment for private companies for items under active consideration on the FASB’s technical agenda.
About the Financial Accounting Standards Board
Since 1973, the Financial Accounting Standards Board has been the designated organization in the private sector for establishing standards of financial accounting and reporting. Those standards govern the preparation of financial reports and are officially recognized as authoritative by the Securities and Exchange Commission and the American Institute of Certified Public Accountants. Such standards are essential to the efficient functioning of the economy because investors, creditors, auditors, and others rely on credible, transparent, and comparable financial information. For more information about the FASB, visit our website at www.fasb.org.