In our comment letter on the proposed ASU, Definition of a Public Business Entity, an Amendment to the Master Glossary, we agree with most of the proposed criteria that would comprise a definition of a public business entity.
However, we have a concern with the criterion "other entities whose financial statements or financial information are required to be or are included in a filing." Based on that criterion, a private company could be considered public business entity as a result of an acquisition or investment by a public company, in which case the private company's historical financial statements would be required to be prepared pursuant to the public company requirements. Preparers could face significant challenges in unwinding previously elected private company accounting alternatives.
We recommend that the board focus on the complexities created in financial reporting for both public and private companies in circumstances where the "status" of a private company changes due to such events. In doing so, we encourage the board to continue to collaborate with the SEC staff to ensure that unintended consequences (for example, the possibility that a public company could effectively be precluded from acquiring a private company due to an inability to comply with the financial reporting requirements) are assessed in circumstances where US GAAP and SEC reporting requirements intersect.
In addition, the term "unrestricted securities" conveys an important distinction in the proposed criteria, but it is not defined in US GAAP. We recommend that this term be included in the Master Glossary.