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Journal entry — PCC meets to discuss the definition of a public business entity and other topics

Published on: Dec 12, 2014

At its meeting this week, the Private Company Council (PCC) principally discussed (1) the definition of a public business entity (PBE), (2) partnership accounting, (3) share-based compensation, and (4) select FASB projects.

Definition of a Public Business Entity (Phase 2)

The FASB staff presented its research on the PCC’s project to consider whether and, if so, how to replace existing definitions of a “public entity” in the FASB Accounting Standards Codification (the “Codification”) with the definition of a PBE provided in ASU 2013-12.1 The staff indicated that its analysis so far has focused on two of the seven different definitions of a public entity in the Codification and that those definitions are applied in ASC 740 (income taxes), ASC 280 (segments), and ASC 805 (business combinations).2 The staff also noted that it had preliminarily identified a small group of entities (i.e., banks that satisfy criterion (e) of the definition of a PBE) that would be affected by replacement of those definitions.3 Certain PCC members expressed concern about the impact of such a change on the scope of the requirements under existing guidance and the possibility that other entities not yet identified could be affected by the change. The PCC asked the staff to conduct research on the feasibility of an approach under which (1) all definitions of a public entity would be replaced by the definition of a PBE and (2) the scope of the affected Codification topics would be adjusted accordingly to ensure that any entities that currently receive the permitted reliefs (e.g., disclosure) are unaffected by the change. In addition, the staff will continue conducting research on the impact of replacing the other definitions of a public entity in the Codification.

Partnership Accounting

The FASB staff presented its research on the practice issues raised during the PCC’s outreach about partnership accounting, including new basis (pushdown accounting), distributions (whether a distribution to a partner is compensation or an allocation of capital), and accounting for nonmonetary asset contributions. The staff observed that ASU 2014-174 will resolve much of the uncertainty encountered in current practice regarding when to apply pushdown accounting and noted that the ASU is immediately effective. The PCC members discussed their views on the remaining partnership accounting issues identified and ultimately directed the staff to continue researching the issues and potential solutions specific to contributions of nonmonetary assets.

Share-Based Compensation

The FASB staff presented the outcome of the FASB’s meeting held earlier in the week, at which the Board had discussed several practical expedients that might be extended to private companies to simplify the accounting for share-based payment awards, specifically with respect to (1) estimating the expected term of an award, (2) classifying awards with repurchase features, and (3) measuring awards classified as liabilities at intrinsic value. At that meeting, the Board had deferred any technical decisions until after it considered the input from the PCC. Although the PCC members were generally supportive of these practical expedients, many of them believed that greater relief is needed for private companies, including the possibility of broader measurement and disclosure exceptions. For the time being, the PCC agreed to work with the Board in moving to finalize a proposal on these simplifications. The FASB is scheduled to discuss these simplifications again next week.

Select FASB Projects

The FASB staff gave an overview of several active projects on the FASB’s agenda and received input from PCC members on the anticipated requirements. The topics discussed included (1) inventory, (2) business combinations, (3) the definition of a business, (4) liabilities and equity, (5) classification and measurement of financial instruments, and (6) impairment of financial instruments. The Board will consider the feedback it receives from the PCC on these topics when it determines the reliefs ultimately provided to private companies under the resulting standards.

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The PCC’s next meeting is scheduled to take place on February 13, 2015. In addition, the PCC plans to hold its next public outreach meeting on April 28, 2015, in Dallas, Texas.

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1 FASB Accounting Standards Update No. 2013-12, Definition of a Public Business Entity — An Addition to the Master Glossary.

2 For titles of FASB Accounting Standards Codification (ASC) references, see Deloitte’s “Titles of Topics and Subtopics in the FASB Accounting Standards Codification.”

3 For a discussion of the impact of the definition of a PBE on banks, see Deloitte’s November 7, 2014, Banking & Securities — Accounting and Financial Reporting Update.

4 FASB Accounting Standards Update No. 2014-17, Pushdown Accounting — a consensus of the FASB Emerging Issues Task Force.

Journal entry — PCC meets to discuss the definition of a public business entity and other topics Image

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