A new FASB proposal seeks to eliminate the designation of “development stage entity,” as well as related disclosure requirements, from U.S. GAAP.
FASB on Thursday issued a Proposed Accounting Standards Update (ASU) that originated with the Private Company Council (PCC) and was expanded in scope to include public and private companies.
A development-stage entity devotes substantially all its efforts to establishing a new business for which planned principal operations either have not commenced or have not produced significant revenue.
U.S. GAAP currently requires development-stage entities to present the same basic financial statements according to the same rules as established operating organizations for recognition and measurement, startup costs, and other similar costs.
Development-stage entities also currently are required to present inception-to-date information about income statement line items, cash flows, and equity transactions. Stakeholders had expressed concern about the cost and relevance of the additional presentation requirements.
Many development-stage entities do not intend to ever manufacture a product, but rather sell their research and development to another business for manufacture. These entities most often exist in the pharmaceutical, biotechnology, and technology industries, according to FASB, and they often remain in the development stage for several years, or even permanently.
Comments on the Proposed ASU, Development Stage Entities (Topic 915): Elimination of Certain Financial Reporting Requirements, are due Dec. 23 and can be made through FASB’s website.
—Ken Tysiac (firstname.lastname@example.org) is a JofA senior editor.