Question

FASB has spent a considerable amount of time in recent years on the topics of public and private business entities. a. How has FASB defined “business entities,” “public business entities,” and “private companies”? 1) For each definition, provide an example of an entity that meets the definition and another example of an entity that does not meet the definition and explain why each entities meets/fails to meet the respective definition. 2) Discuss the practical implications of meeting/not meeting the requirements of each definition (e.g., How would accounting be different for an entity that was/was not a “business entity” or a “public business entity”?). b. Why has FASB become interested in defining and distinguishing among these types of entities? c. Analyze the agreement between these definitions and the conceptual framework of accounting. Do these definitions provide more useful accounting information to stakeholders? d. What structural changes has FASB made to deal with “private company” issues? e. How does the issue of “preferability” relate to this topic? Fully explain and support all conclusions.

Answer 1

a. Define all the above terms.

1- "Business entity ":

"Organization established as a separate existence for the purpose of tax "The are some other type of entities I. e corporations ,limited liability companies and sole proprietorship.

Example -sole proprietorship business. It's a business which run by mainly one person. It treated as a business entities. In related to accounting treatment.,this business does not have more transactions and not much complecate to other.

2.Defination of "Public business entity ":

"Public business entity would be an organization that meets certain criteria to define as follows -

I. According to the FASB, "it's required by the SEC (securities and exchange to file financial statement including those entities whose financial statement are required to be filling)".

II. It has unrestricted securities trade practices in the market.

Example -Under this specific concept the entities like public limited company, statutory company etc, it's only the reason behind to separate the entities is identified the private and public entities.

3. Definition of "Private entities ":

"private entity" means, "any entity that is not a unit of government, including but not limited to a corporation,partnership,company,non profit organization or the legal entity or a natural person ".

Example -The example for this entities are sole proprietors,partnrrship, small and medium size business etc. Which usually free from government control. So it's called private entities.

b. The reason for distinguishing the entities is identified the entities. Generally FASB (financial accounting standard board) wants to run the entire transactions perfect in order to collect revenue or tax. There are the certain procedure to get registered in respected entities as we discussed above. So the board FASB became very accountability to different entities for accounting practice and different benefits as well.

c. These all accounting information very crucial to stakeholder. As we know the entity which get registered in SEC Act which all those entities have to submit there details records and transaction. As per the FASB, the entities required to furnish the detail. So it's providing more useful information to the stakeholders.

d. There was a issue which was very recently related to private entities. There are certain entities which were got add with public business entities. The recent amendment brought the new framework for separating private and public business entity. So in order to deal with that fasb comes up with SEC act rule and resolve the issue.

e. The issue very significantly related the entities. Initially some private entities which got add with public business entity. As fact the entity was getting more benefit as like entity "not for profit organization ".so this particular issues got changed when the certain entities got separated from public business entity by new definition.