FASB issues ASU 2013-12, Definition of a Public Business Entity

The Financial Accounting Standards Board (FASB) issued Accounting Standards Update 2013-12, Definition of a Public Business Entity (ASU 2013-12) in December 2013. This update provides a single definition of public business entity for use in future financial accounting and reporting guidance. Distinctions about which not-for-profit entities (NFPs) would receive financial accounting and reporting alternatives within US GAAP typically have been made on the basis of whether an NFP has public debt securities, including conduit debt.

The update excludes all NFPs from the definition of public business entity so that a public versus nonpublic distinction will no longer be made between NFPs in future standard setting. The amendment does not affect existing requirements but does indicate that FASB will consider factors such as user needs and NFP resources, on a standard-by-standard basis, when determining whether all, none, or only some NFPs will be eligible to apply financial accounting and reporting alternatives within US GAAP for private companies.

Who does this impact?

Higher education institutions are likely to have conduit debt. Because of this debt, they were required by the FASB standards to adopt pronouncements intended for publicly traded companies. Going forward, higher education institutions may now be considered a NFP and may not be required to implement those FASB pronouncements, therefore minimizing some financial reporting time and effort.

Given that the amendment does not impact existing pronouncements, there is no actual effective date. However, the term public business entity will be used in Accounting Standards Updates beginning in 2014.

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