In December 2013, the Financial Accounting Standards Board added a new definition to its master glossary with the issuance of Accounting Standards Update 2013-12, Definition of a Public Business Entity. The public business entity (PBE) definition will be used to determine which entities may apply the private company accounting and reporting alternatives within US generally accepted accounting principles (US GAAP) on a going-forward basis.
Together with the Financial Accounting Standards Board (FASB), the Private Company Council (PCC) develops alternatives to US GAAP for private companies to address concerns that certain accounting standards are not relevant to many users of private company financial statements and that they create unnecessary complexity and significant costs for preparers and auditors.
Definition of a PBE
A PBE is defined as an entity meeting any one of the following criteria:
- Required by the US Securities and Exchange Commission (SEC) to file or furnish financial statements, or does file or furnish financial statements (including voluntary filers), with the SEC (including other entities whose financial statements or financial information are required to be or are included in a filing)
- Required by the Securities Exchange Act of 1934 to file or furnish financial statements with a regulatory agency other than the SEC
- Required to file or furnish financial statements with a foreign or domestic regulatory agency for the sale of securities or for purposes of issuing securities that are not subject to contractual restrictions on transfer (that is, the securities are not subject to management pre-approval on resale)
- Issued, or is a conduit bond obligor for securities traded, listed or quoted on an exchange or an over-the-counter market
- Its securities 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, to be made publicly available on a periodic basis. Both of these conditions must be met for this criterion to apply
Entities meeting the definition of a PBE will not be eligible to elect the accounting and reporting alternatives in US GAAP issued by the PCC and FASB. Also, nonprofit entities and employee benefit plans may not elect PCC modifications unless specifically permitted on a standard-by-standard basis. In addition, private companies not eligible to apply PCC modifications will be identified, on a standard-by-standard basis, by factors such as user needs and entity resources.