FASB ISSUES STANDARD TO IMPROVE FINANCIAL REPORTING FOR 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.
For example, many start-ups or even long-lived organizations that have not yet
begun their principal operations or do not have significant revenue would be
identified as development stage entities.
Update Eliminates Inception-to-Date Information,
Difference In Consolidation Guidance
Norwalk, CT, June 10,
2014—The Financial Accounting Standards Board (FASB) today issued
guidance intended to reduce the overall cost and complexity associated with
financial reporting for development stage entities, without reducing the
availability of relevant information.
Current Generally Accepted
Accounting Principles (GAAP) require a development stage entity to present the
same basic financial statements and apply the same recognition and measurement
rules as established companies. In addition, GAAP requires a development stage
entity to present inception-to-date information about income statement line
items, cash flows, and equity transactions.
Accounting Standards Update
No. 2014-10, Development
Stage Entities (Topic 915): Elimination of Certain Financial Reporting
Requirements, Including an Amendment to Variable Interest Entities Guidance in
Topic 810, Consolidation removes all incremental financial reporting
requirements from GAAP for development stage entities, including the removal of
Topic 915 from the FASB Accounting Standards Codification®. In addition, the
“Stakeholders have expressed concerns
about the cost and limited relevance of the additional presentation and
disclosure requirements specific to development stage entities,” said FASB
Chairman Russell G. Golden. “The Accounting Standards Update simplifies the
accounting guidance, and provides more opportunities for cost savings for
preparers. The update should also help foster more consistent consolidation
analyses and decisions among public and private development stage entities,
thereby improving the relevance of information provided to users of financial
- Adds an example disclosure in Risks and Uncertainties (Topic 275) to
illustrate one way that an entity that has not begun planned principal
operations could provide information about the risks and uncertainties related
to the company’s current activities.
- Removes an exception provided to development stage entities in
Consolidations (Topic 810) for determining whether an entity is a variable
interest entity—which may change the consolidation analysis, consolidation
decision, and disclosure requirements for a company that has an interest in a
company in the development stage.
For organizations defined as public business entities, for
the first annual period beginning after December 15, 2014, the presentation and
disclosure requirements in Topic 915 will no longer be required. The revised
consolidation standards are effective one year later, in annual periods
beginning after December 15, 2015. Early adoption is permitted.
organizations, for the first annual period beginning after December 15, 2014,
the presentation and disclosure requirements in Topic 915 will no longer be
required. The revised consolidation standards are effective two years later, in
annual periods beginning after December 15, 2016. Early adoption is
and a FASB
in Focus document are available at http://www.fasb.org/.
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/.