The Private Company Council (PCC) voted to add a project on its agenda that will ultimately determine what types of portfolio companies, and possibly even private fund advisors themselves, can apply simpler accounting standards designed for private-sector entities.
Specifically, the council will consider how it applies its definition of a “public business entity” at a July meeting or possibly later in September, according to Christine Klimek, a spokesperson for the Financial Accounting Standards Board (FASB), the body that oversees US accounting standards and must ultimately approve any PCC decisions.
The PCC was recently created to find exceptions or modifications to US GAAP for private companies, who argue US accounting standards are more geared toward the needs of large public companies.
In December, FASB defined what qualifies as a public business entity for future use in US GAAP and identified the types of business entities that are excluded from the scope of the PCC. In a past comment letter, pfm argued the definition doesn't necessarily capture private fund advisors, thus opening the door for the private funds industry to benefit from simpler accounting rules in certain areas.
Currently the FASB has written a number of definitions that determine which entities fall within its scope, including the aforementioned public business entity as well as “publicly traded company” and the original “non-public entity” definition. As part of the new project, the council will discuss if some of those definitions can be reworded and merged to reduce redundancies.
Once that work is completed, “private fund advisors will need to determine if they meet the definition by examining the qualifying criteria”, said Klimek.