FASB relaxes rules for development-stage entities

BY KEN TYSIAC

FASB on Tuesday issued a new accounting standard that relaxes financial reporting requirements for development-stage entities.

A development-stage entity devotes substantially all its efforts to establishing a new business and either:

  • Has not commenced planned principal operations; or
  • Has commenced planned principal operations, but has not produced significant revenue.


The changes are described in 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.

Current U.S. GAAP requires development-stage entities to present the same basic financial statements and apply the same recognition and measurement rules as established companies. In addition, GAAP has required development-stage entities to present inception-to-date information about income statement line items, cash flows, and equity transactions.

The new guidance removes all incremental financial reporting requirements from U.S. GAAP for development-stage entities and removes Topic 915 from FASB’s Accounting Standards Codification.

FASB Chairman Russell Golden said in a news release that the board made the changes to address concerns about the cost and limited relevance of the additional presentation and disclosure requirements for development-stage entities.

“The Accounting Standards Update simplifies the accounting guidance, and provides more opportunities for cost savings for preparers,” he said. “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 statements.”

The new standards also:

  • Add 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.
  • Remove an exception provided to development-stage entities in Consolidations (Topic 810) for determining whether an entity is a variable-interest entity—which may create changes for a company that has an interest in a company that is in the development stage.


The presentation and disclosure requirements in Topic 915 will no longer be required in the first annual period beginning after Dec. 15, 2014. The revised consolidation standards will take effect in annual periods beginning after Dec. 15, 2015, for public business entities, and in annual periods beginning after Dec. 15, 2016, for other organizations. Early adoption is permitted for all entities.

Ken Tysiac ( ktysiac@aicpa.org ) is a JofA senior editor.

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