FASB Chairman Adds an Agenda Project on Defining “Nonpublic Entities”
The Financial Accounting Standards Board (FASB) has added to its agenda a project to re-examine the definition of a “nonpublic entity.”
FASB Chairman Leslie F. Seidman decided to add the agenda project in light of the comments from stakeholders requesting clarification of the existing definitions and ongoing questions about which definition of a nonpublic entity was being used in various projects.
When providing feedback, stakeholders specifically questioned which nonpublic entities will qualify for practical expedients, reduced disclosures, and deferred effective dates. The FASB identified a similar need for clarity on the definition of a nonpublic entity with respect to the scope of the Private Company Decision-Making Framework that the FASB staff has been developing with the help of a resource group composed of private company stakeholders.
The project will focus on defining what constitutes a private company to distinguish between different types of entities for standard-setting purposes. An additional goal of the project will be to determine which companies are to be included in the scope of the Private Company Decision-Making Framework that is being developed. The FASB will also evaluate whether any changes that result from a consistent definition should be applied prospectively or retrospectively to affected accounting standards.
“The FASB Accounting Standards Codification® includes several definitions of private companies that the FASB established to address specific types of issues over the years, including the scope of a standard, differences in accounting or disclosure requirements, and different effective dates,” stated Ms. Seidman.
“The FASB identified an opportunity to simplify the definition of a nonpublic entity and to address a few known practice issues. This project will also help us identify the scope of entities that would be considered in future discussions about potential differences in requirements for nonpublic entities.”
The FASB staff, with the help of a resource group, has been developing a set of decision criteria (the Private Company Decision-Making Framework) to assist the Board in making decisions about whether and when to modify the requirements for recognition, measurement, presentation, disclosure, effective dates, and transition methods for financial accounting standards that apply to private companies.
The FASB staff plans to issue a discussion document for public comment in the second quarter, but would not plan to finalize the framework until the Financial Accounting Foundation (FAF) has made a decision about its Plan to Improve Standard Setting for Private Companies, and any new Council has an opportunity to evaluate and agree with the proposed framework.
The FASB Accounting Standards Codification® reorganizes the thousands of U.S. GAAP pronouncements, excluding governmental accounting standards, into roughly 90 accounting Topics and displays all Topics using a consistent structure. It also includes relevant Securities and Exchange Commission (SEC) guidance that follows the same topical structure in separate sections in the Codification.