FASB VOTES TO ISSUE 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—September 11, 2013—The
Financial Accounting Standards Board (FASB) today voted to issue an Exposure
Draft containing proposals intended to improve financial reporting about public
and private development stage entities. The Board expects to issue the Exposure
Draft in the coming weeks.
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. GAAP requires development stage entities to present
the same basic financial statements and apply the same recognition and
measurement requirements 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.
Stakeholders have raised concerns about the cost and relevance of these
additional presentation requirements. 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.
"As part of
our commitment to increase the relevance of financial reporting while reducing
its cost and complexity, the FASB will issue an Exposure Draft aimed at
improving reporting about development stage companies and organizations," stated
FASB Chairman Russ Golden. "The recommendation of the PCC prompted us to look
at ways of addressing this issue for the benefit of both private and public
companies, and we encourage all of our stakeholders to review and provide
feedback on the document when we issue it."
The Exposure Draft is
expected to be issued by the end of October. It will be posted 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 at http://www.fasb.org/.