FASB News

Should the Definition of a Public Business Entity be Revised?

FASB may be interested in revising the definition of a public business entity (PBE), according to board discussions held on May 8. Staff will hold an educational session with board members to see if there is an interest in exploring the topic further. “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 U.S. GAAP or be able to take advantage of exemptions and accounting workarounds that are available to privately held entities. The issue surfaced during redeliberation of proposed disaggregation of income statement expense (DISE) disclosure rules, which dealt with 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 FASB about a decade ago.

Early Decisions on Accounting for Environmental Credits Get Thumbs Up.

Firms like FASB’s “reasonable” decisions on accounting for environmental credit programs thus far, especially because the guidance would be flexible where it matters most, panelists at a financial reporting conference recently said. “It allows companies to account for things differently based on how they plan to use the environmental credits, which I think is making them feel a lot better,” Scott Taub, managing director at Financial Reporting Advisors said on May 2 at the 22nd Annual Financial Reporting Conference at Baruch College in New York. “These programs are really ramping up now and becoming far more prevalent,” he said. “Just about any large company these days is probably running into one of these programs somewhere around the world, either because they’re on the obligation side, they’re emitting too much carbon and therefore have to pay, or on the asset side where they have some carbon offset credits or something similar that they can sell.” The topic relates to things like renewable energy credits (REC), renewable identification numbers (RIN), the EU emissions allowances, or other carbon offsets. But FASB won’t specifically define the list of all of the environmental credits that are within the scope of this project. There will be definitions of environmental credits and environmental credit obligations that will be flexible enough to deal with emerging programs in the future. How companies are going to use these credits is particularly relevant to financial reporting as well as related disclosures, panelists said.

PCAOB News

Quality Control Standard Moves Forward

The Public Company Accounting Oversight Board (PCAOB) voted 4-1 to adopt a new standard that imposes a combination of principles-based and prescriptive requirements to make sure that audit firms have a robust system of quality control (QC) to better protect investors. Board member Christina Ho dissented, claiming that the new standard will increase burdens on small firms without providing commensurate benefits. The board is establishing the new QC 1000, “A Firm’s System of Quality Control,” to require firms to identify risks that are specific to their audit practice. At the same time, the standard also mandates certain requirements that are intended to make sure that firms’ QC systems are designed, implemented, and operated “with an appropriate level of rigor.” Firms are not only required to operate the QC system that they designed but must also monitor the system and take steps to fix areas that do not operate effectively. This is an important aspect of the system, as it is intended to create a continuous feedback loop to improve audit quality. In addition, the PCAOB is requiring audit firms to evaluate their QC system annually and report the results of their assessment to the board on a new Form QC certified by key firm personnel. This is intended to reinforce individual accountability. The PCAOB is imposing an additional requirement for larger firms.