Technical Q&A (TQA) On Public Business Entity (PBE) Definition
With the FASB’s revenue recognition and financial instrument recognition and measurement standards first becoming effective in the first quarter of 2018, it is critical to determine whether an entity meets the definition of a PBE for financial reporting purposes. The definition can be far-reaching and includes entities beyond those that are registered with the SEC. The FASB typically uses this definition to determine effective dates, scale disclosure, and offer practical expedients – making the determination of whether an entity is a PBE an important analysis.
On Oct. 24, 2017, the AICPA issued a TQA document on the “Definition of a Public Business Entity,” including 16 new questions and answers that provide guidance on the terminology included in the PBE definition and other considerations for applying the definition.
These are among the topics:
- Industry-specific questions about not-for-profit entities, banks, mutual and credit unions, insurance companies, and brokerdealers
- Use of terms including “security,” “over-the-counter market,” “conduit bond obligor,” “contractual restriction on transfer,” “prepare,” “publicly available,” “financial statements,” and “periodic basis”
- Types of resale restrictions that qualify as contractual restrictions (for example, typical S-corporation management preapproval for resale) and types of resale restrictions that do not qualify (for example, right of first refusal)
- Types of instruments including brokered certificates of deposit, 144 and 144A (referred to as “private for life”) securities, and notfor- profit conduit debt securities
- How to evaluate tiered organizational structures (parent, subsidiary, nonconsolidated pass-through entities, and guarantees)
- Equity method pickups
- Transactions reported in Financial Industry Regulatory Authority (FINRA) Trade Reporting and Compliance Engine (TRACE) or Municipal Securities Rulemaking Board (MSRB) Electronic Municipal Market Access (EMMA)
Proposal For Expanding The Auditor’s Report
On Nov. 29, 2017, the AICPA’s Auditing Standards Board issued three exposure drafts; one of particular interest to private entities is the proposed alignment of the form and content of the auditor’s reporting under AICPA standards with the International Auditing and Assurance Standards Board standards and, in many ways, with the PCAOB standards.
The exposure draft, “Proposed Statements on Auditing Standards [SAS] – Auditor Reporting and Proposed Amendments – Addressing Disclosures in the Audit of Financial Statements,” includes the following changes:
- The opinion section must be presented first in the auditor’s report, followed by the basis for opinion, which must include an affirmative statement about the auditor’s independence and fulfillment of other ethical responsibilities.
- Communication of key audit matters (KAMs) would not be required for audits of nonissuers unless the terms of the audit engagement include reporting KAMs.
- The description of the responsibilities of management for the preparation and fair presentation of the financial statements is expanded, including a requirement to identify those responsible for the oversight of the financial reporting process if different from those responsible for the preparation.
- The description of the responsibilities of the auditor and key features of an audit is expanded.
The proposal would be effective no earlier than for audits of financial statements for periods ending on or after June 15, 2019.
Comments are due May 15, 2018.