FASB made two important decisions Wednesday in its project to define a nonpublic entity.
An entity that is required to file or furnish financial statements with the SEC to issue securities to be traded in a public market should not be included in the definition of a private company, FASB decided. In addition, the board decided that privately held financial institutions should be included in the definition of a private company.
FASB reported the developments in a summary of board decisions on its website. The board is examining the definition of a “nonpublic entity” after stakeholders presented ongoing questions about which definition of a nonpublic entity was being used in various projects.
A clarified definition of nonpublic entities is necessary to determine the scope of FASB’s project to develop a Private Company Decision-Making Framework of criteria for deciding whether and when to adjust requirements for recognition, measurement, presentation, disclosure, effective dates, and transition methods for standards that apply to private companies. A document for public discussion on that document is scheduled to be issued in the second quarter of this year.
The framework will not be completed until the Financial Accounting Foundation (FAF) makes a decision on its work plan to address private company standards. The FAF has proposed creating a Private Company Standards Improvement Council whose suggestions for modifications to U.S. GAAP for private companies would be subject to FASB approval; a final decision is expected when FAF trustees meet May 22–23.
—Ken Tysiac (firstname.lastname@example.org) is a JofA senior editor.