By: Ashley Britton
In the past, there have been varying definitions of a public entity vs. a nonpublic entity. As a result, it left some companies questioning if all accounting guidance was effective for their organizations. In December 2013, Federal Accounting Standards Board (FASB) decided to clear up this confusion by issuing Accounting Standard Update (ASU) 2013-12, Definition of a Public Business entity. This ASU does not have an effective date—it will simply act as an amendment to the Master Glossary of FASB’s Accounting Standards Codification to state one definition of a public company. Companies will be able to use this definition going forward in considering the scope of new guidance and determine if it applies to their organizations.
There are two types of entities that are specifically excluded from this definition—nonprofit entities and employee benefit plans. For each of these types of entities, FASB will determine eligibility on a case by case basis when applying financial accounting and reporting alternatives in order to follow the Private Company Council’s (PCC) simplified accounting standards.
This ASU defines a public entity as one that meets any of the following criteria:
- It is required by the US Securities and Exchange Commission (SEC) to file or furnish financial statements, or does file or furnish financial statements, with the SEC.
- It is required by the Securities Exchange Act of 1934 (the Act), as amended, or rules or regulations promulgated under the Act, to file or furnish financial statements with a regulatory agency other than the SEC.
- It is required to file or furnish financial statements with a foreign or domestic regulatory agency in preparation for the sale of or for purposes of issuing securities that are not subject to contractual restrictions on transfer.
- It has issued, or is a conduit bond obligor for, securities that are traded, listed, or quoted on an exchange or over-the-counter market.
- It has one or more securities that are not subject to contractual restrictions on transfer, and it is required by law, contract, or regulation to prepare US GAAP financial statements (including footnotes) and make them publically available on a periodic basis. An entity must meet both of these requirements to meet this criterion.
It was also noted in the ASU that certain entities may be automatically included in this definition if their financial statements are included in another entity’s filing with the SEC. In this case, those entities would only be considered public entities as it relates to financial statements filed with the SEC.
For more information on this ASU visit www.fasb.org.
Ashley Britton, CPA is a senior manager with Johnson Lambert LLP. She has over ten years of experience in providing various levels of accounting and auditing services to not-for-profit organizations. In addition to assisting clients with traditional accounting and auditing matters, she is a strong resource for her clients in a business advisory capacity. She has assisted in preparing budgets, been actively involved in long-range planning regarding financing decisions, and provided technical assistance and advice to executive staff and Boards of Directors. Ashley is a graduate of Meredith College, an active volunteer in her community, and serves on the A&A and not-for-profit committees with the NCACPA.