FASB ISSUES EXPOSURE DRAFT TO IMPROVE FINANCIAL REPORTING ABOUT DEVELOPMENT
STAGE ENTITIES
PCC-recommended proposal would improve relevance and
reduce complexity of financial reporting for both public and private
organizations
Norwalk, CT—November 7, 2013—The Financial
Accounting Standards Board (FASB) today issued a proposed
Accounting Standards Update intended to improve financial reporting about
public and private development stage entities. Stakeholders are encouraged to
review and provide comment on the proposed Update by December 23, 2013.
Based on the recommendation of the Private Company Council (PCC) at its July 16,
2013 meeting, the FASB added a project to its technical agenda to address
financial reporting complexity for all organizations in the development stage. A
development stage entity is one that devotes substantially all of its efforts to
establishing a new business and for which (a) planned principal operations have
not commenced or (b) planned principal operations have commenced, but have
produced no significant revenue.
Current U.S. Generally Accepted
Accounting Principles (GAAP) requires development stage entities to present the
same basic financial statements and apply the same recognition and measurement
rules for revenues, start-up costs, and other similar costs incurred as required
of established operating organizations. In addition, it requires development
stage entities to present inception-to-date information about income statement
line items, cash flows, and equity transactions.
The proposed Update
would eliminate the distinction of being a development stage entity—as well as
its related disclosure requirements—within U.S. GAAP. This would address
stakeholder concerns about the cost and relevance of the additional presentation
requirements specific to development stage entities. Many development stage
entities with multiple products under development do not intend to ever
manufacture a single product, but rather, may periodically sell the research and
development to another business. Pharmaceutical, biotechnology, and technology
industries are most likely to have long-term development stage entities affected
by these requirements and it is now common for many of these entities to remain
in the development stage for several years or even in perpetuity.
"The
proposal is the result of a PCC recommendation, but it could improve financial
reporting for both public and private companies," noted FASB Chairman Russ
Golden. "We encourage all of our stakeholders to review and provide feedback on
our proposal."
The proposed
Update—including instructions on how to submit comments—and a FASB
in Focus document are available at http://www.fasb.org/.
About
the Financial Accounting Standards Board
Since 1973, the
Financial Accounting Standards Board has been the designated organization in the
private sector for establishing standards of financial accounting and reporting.
Those standards govern the preparation of financial reports and are officially
recognized as authoritative by the Securities and Exchange Commission and the
American Institute of Certified Public Accountants. Such standards are essential
to the efficient functioning of the economy because investors, creditors,
auditors, and others rely on credible, transparent, and comparable financial
information. For more information about the FASB, visit our website http://www.fasb.org/.