FASB ISSUES EXPOSURE DRAFT TO IMPROVE FINANCIAL REPORTING ABOUT DEVELOPMENT STAGE ENTITIESPCC-recommended proposal would improve relevance and reduce complexity of financial reporting for both public and private organizations
Norwalk, CT—November 7, 2013—The Financial Accounting Standards Board (FASB) today issued a proposed Accounting Standards Update intended to improve financial reporting about public and private development stage entities. Stakeholders are encouraged to review and provide comment on the proposed Update by December 23, 2013.
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. Generally Accepted Accounting Principles (GAAP) requires development stage entities to present the same basic financial statements and apply the same recognition and measurement rules 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.
The proposed Update would eliminate the distinction of being a development stage entity—as well as its related disclosure requirements—within U.S. GAAP. This would address stakeholder concerns about the cost and relevance of the additional presentation requirements specific to development stage entities. 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.
“The proposal is the result of a PCC recommendation, but it could improve financial reporting for both public and private companies,” noted FASB Chairman Russ Golden. “We encourage all of our stakeholders to review and provide feedback on our proposal.”
The proposed Update—including instructions on how to submit comments—and a FASB in Focus document are available at 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 www.fasb.org.