Resources

Thomson Reuters Tax & Accounting News

Featuring content from Checkpoint

Back to Thomson Reuters Tax & Accounting News

Subscribe below to the Checkpoint Daily Newsstand Email Newsletter

Guidance for Development Stage Entities Is Cut from U.S. GAAP

June 11, 2014

The FASB removed the incremental financial reporting requirements from U.S. GAAP for young businesses often described as development stage entities. The changes are expected to reduce the cost and complexity of financial reporting for development stage entities.

The FASB on June 10, 2014, removed the incremental financial reporting requirements from U.S. GAAP for young businesses often described as development stage entities.

The accounting board said the changes will reduce the cost and complexity of financial reporting for development stage entities. The board also said its amendments won’t reduce the quality of information available to investors and creditors.

The changes were issued in Accounting Standards Update (ASU) 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. The update removes Topic 915, Development Stage Entities, from the Accounting Standards Codification. Much of the guidance in Topic 915 was issued in 1975 as SFAS No. 7, Accounting and Reporting by Development Stage Enterprises, and hasn’t been substantially revised since then.

The update also deletes the guidance in ASC 810-10-15-16, Consolidation – Overall – Scope and Scope Exceptions, which described the conditions for determining when a development stage entity is the type of off-balance-sheet vehicle known as a variable interest entity (VIE). The FASB said the change will lead to more consistent reporting by companies when they determine if an investment in a new business is a VIE that should be consolidated onto their financial statements.

The FASB said Topic 915’s presentation and disclosure rules will no longer be effective in fiscal years that begin after December 15, 2014. Public companies will apply the revised accounting for consolidated reporting a year later. Other organizations, including privately held businesses and not-for-profit groups, will apply the revised accounting for consolidated reporting for fiscal years that start in 2017. The FASB said the changes can be adopted before the effective date.

The update adds an example of a disclosure to ASC 275-10-55-3, Risks and Uncertainties — Implementation Guidance and Illustrations, formerly AICPA Statement of Position (SOP) No. 94-6, that shows one way an organization that hasn’t begun its operations can provide information about the risks facing it.

“The Accounting Standards Update simplifies the accounting guidance and provides more opportunities for cost savings for preparers,” said FASB Chairman Russell Golden in a statement. “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.”

Tagged with →