Proposed Changes to U.S. GAAP for Development Stage Entities

The Financial Accounting Standards Board (FASB) recently issued a Proposed Accounting Standards Update (ASU) for development stage entities. If enacted as proposed, the following current requirements applicable to development stage entities would be eliminated.

  1. Reporting of inception-to-date information for the statements of income, cash flow, and shareholder’s equity.
  2. Labeling of the financial statements as “development stage.”
  3. Disclosing the development stage activities in which the entity is engaged.
  4. Disclosing the first year the entity exits development stage and the fact that they previously were in the development stage.

The proposal would also remove the definition of a development stage entity from accounting guidance—there would no longer be a distinction from other entities. It should also be noted that these proposed changes would further align the US and International Accounting Standards as International Standards make no distinction for development stage entities.

FASB’s proposal is based on concerns voiced from preparers and users of development stage entity financial statements, who noted that the cost of reporting under current requirements outweighs the benefits to the users of the financial statements.

After the FASB considers the public comments, it will decide whether to finalize the proposal or to make further changes. An effective date will be established when the proposal is finalized. Early adoption will be permitted for entities that have not yet issued their financial statements.

If you would like to discuss further, please call your BNN advisor or James Boissonneault at 1-800-244-7444.

Disclaimer of Liability: This publication is intended to provide general information to our clients and friends. It does not constitute accounting, tax, investment, or legal advice; nor is it intended to convey a thorough treatment of the subject matter.

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