Should the Definition of a Public Business Entity be Revised? FASB Mulling Topic

The FASB may be interested in revising the definition of a public business entity (PBE), according to board discussions on May 8, 2024.

Staff will hold an educational session with board members to see if there is an interest in further exploring the topic.

“I know it’s something the board looked at previously. I think what might make sense is to do some education with the board members once we get a little more information, including about the definition of PBE, non-PBE,” FASB Chair Richard Jones said. “Seems like there is some interest.”

The PBE definition determines whether a company would have to apply the full version of US GAAP or be able to take advantage of exemptions and accounting workarounds that are available to privately held firms. The issue surfaced during redeliberations of proposed disaggregation of income statement expense disclosure rules, known as “DISE” around whether non-issuer broker-dealers should be exempt from those disclosure requirements as they are scoped only for public companies. The definition of a PBE was addressed by the FASB about a decade ago.

“This is not a new question, and certainly this practitioner has asked us to reconsider the appropriateness of the definition of a public business entity but I think in this circumstance, you know, certainly they’re also questioning the usefulness of these disclosures to non-issuer broker-dealers,” FASB member Susan Cosper said. “And I would maintain the current scope as we had put forth on this project applying to public business entities,” she said. “I would support, however, looking at that PBE definition separately as a separate project. And it’s been some time since we made the cut, and maybe we need to revisit it.”

Overall, most board members said they would be interested in a separate project on the definition of a PBE.

“I do think that because we’ve heard this concern repeatedly and we’re likely to continue to hear this concern, that it may mean that we do need to go back and take another look at the definition of public business entity,” FASB member Christine Botosan said. “And we have an agenda consultation coming up,” she said. “So, we could ask, ‘is this a problem that is pervasive enough that we should take it on and gather some feedback?’ It may not just be a problem with the non-issuer broker-dealers. Maybe there are other problems with the definition of public business entity that we should be reconsidering.”

‘Non-Issuer’ Broker-Dealer?

The definition of a PBE puts non-issuer broker-dealers in a unique position, according to the discussions.

Broker-dealers registered under the Securities Exchange Act of 1934 are required to file a separate set of financial statements with the SEC on at least an annual basis. Those financial statements filed with the SEC are generally not made public because they are permitted confidential treatment if the broker-dealer also files an audited balance sheet and related disclosures. Because of the filing requirements with the SEC, a broker-dealer meets the definition of a public business entity. However, the term “non-issuer broker-dealer” is colloquially used by regulators and practitioners, but it’s not specifically defined.

In relation to “DISE” rules, FASB staff asked the board whether to provide a scope exception for non-issuer broker-dealers and create a master glossary definition for a non-issuer broker-dealer.

Another alternative would be to define a non-issuer broker-dealer, but consider providing a scope exception for all broker-dealers that file financial statements with the SEC’s divisions of trading and markets under the 1934 Act, staff suggested. However, broker-dealers that file financial statements with the SEC’s division of corporate finance, would not be eligible for the scope exception. “Providing a potential scope exception for just those broker-dealers that file financial statements with the SEC’s division of trading and markets is unique, so we’ll need to ensure that we appropriately define this population,” staff said.