Development Stage Entities
Last updated on March 5, 2014. Please refer to the Current Technical Plan for information about the expected release dates of exposure documents and final standards.
(Updated sections are indicated with an asterisk *)
The staff has prepared this summary of Board decisions for information purposes only. Those Board decisions are tentative and do not change current accounting. Official positions of the FASB are determined only after extensive due process and deliberations.
The project is intended to reduce cost and complexity in the financial reporting system by eliminating inception-to-date information from the financial statements of development stage entities. As part of the project, the staff will research potential additional disclosures that could result in increased relevance for users of development stage entity financial statements.
- Eliminate the requirement for a development stage entity (DSE) to present inception-to-date information on the statements of income, cash flows, and shareholder’s equity.
- Eliminate the remaining presentation and disclosure requirements in Topic 915 and amend Topic 275, Risk and Uncertainties, clarifying that the risk and uncertainty disclosure requirements should apply to entities that have not begun operations.
- Eliminate the guidance on variable interest entities for DSEs in paragraph 810-10-15-16.
- Because the effect of those decisions is to eliminate from U.S. GAAP any special reporting by DSEs, to remove the definition of development stage entity from the Codification.
- For inception-to-date information and the remaining disclosure requirements of Topic 915—The changes should be applied retrospectively, with the benefit of hindsight for any new disclosure requirements that are a result of clarifying Topic 275. For public business entities, the changes will be effective for interim and annual reporting periods beginning after December 15, 2014. For other entities, the changes will be effective for annual periods beginning after December 15, 2014, and interim and annual periods thereafter. Entities will be allowed to early apply the changes as of the first annual or interim period following the issuance of a final Accounting Standards Update.
- For the elimination of paragraph 810-10-15-16—Public business entities should apply the amended guidance retrospectively for interim and annual reporting periods beginning after December 15, 2015. For other entities, the amended guidance should be applied retrospectively for annual periods beginning after December 15, 2016, and interim and annual periods thereafter. Early application will be permitted for any annual or interim period for which the entity’s financial statements have not yet been issued or made available for issuance.
*Next StepsThe Board directed the staff to draft a final Accounting Standards Update for vote by written ballot.
Please see the Current Technical Plan for more information about the projected timeline.
*Board/Other Public Meeting DatesThe Board meeting minutes are provided for the information and convenience of constituents who want to follow the Boards' deliberations. All of the conclusions reported are tentative and may be changed at future Board meetings. Decisions become final only after a formal written ballot to issue a final standard.
|*February 26, 2014||Board Meeting—The Board affirmed the changes in the November 2013 Exposure Draft, Development Stage Entities (Topic 915): Elimination of Certain Financial Reporting Requirements, and directed the staff to draft a final Accounting Standards Update for vote by written ballot.|
|September 11, 2013||Board Meeting—The Board directed the staff to draft a proposed Accounting Standards Update that would supersede all of the incremental presentation and disclosure requirements for development stage entities that are currently required by Topic 915, Development Stage Entities.|
|July 16, 2013||PCC Meeting—Agenda Announcement|
Background InformationThe Board issued FASB Statement No. 7, Accounting and Reporting by Development Stage Enterprises, in June 1975. Statement 7 was later codified in Topic 915, Development Stage Entities. A development stage entity is an entity 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 there has been no significant revenue therefrom.
Prior to the issuance of Statement 7, development stage entities prepared financial statements using various recognition and measurement methods, most notably in regard to research and development costs and different presentation formats. After deliberating the issues, the Board concluded that development stage entities should 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 entities. The FASB added additional presentation requirements for development stage entities to require those entities to present cumulative information about income statement line items, cash flows, and equity transactions.
Stakeholders have since objected to the additional presentation requirements because they believe that the costs of providing such information are excessive and the information is not relevant to users of financial statements. The stakeholders have told the staff that that there are now many development stage entities with multiple products under development in a single entity which do not intend to ever manufacture a single product, Instead,, such an entity 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 Topic 915 and it is now common for many of those entities to remain in the development stage for several years or even in perpetuity.
At their February 12, 2013, meeting, the Private Company Council directed the FASB staff to conduct preagenda research and outreach to stakeholders on Topic 915. The staff conducted outreach with both private and public companies and received similar feedback from both. On the basis of the recommendation of the Private Company Council at its July 16, 2013, meeting, the FASB added a project to its technical agenda to address financial reporting complexity for all entities in the development stage.
*Contact InformationRegenia Cafini
Project Research Associate