Simplified Accounting Guidance for Development Stage Entities
In June, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update 2014-10, Development Stage Entities (Topic 915). This update simplifies financial reporting for development stage entities by removing the requirement to report inception-to-date information, labeling the financial statements as those of a development stage entity and requiring disclosure of development stage activities in which the entity is engaged and disclosure of the first year in which the entity is no longer in the development stage.
This matter was originally identified for improvement by the Private Company Council (PCC). The PCC recommended that the guidance for private development stage entities be amended as users of financial statements did not find the additional inception-to-date information useful in decision making. The FASB embraced the PCC’s recommendation and issued the proposed standards update in September 2013. Public comments voiced to the FASB concurred with the PCC’s recommendations. ASU 2014-10 also reduces differences between US GAAP and International Financial Reporting Standards (IFRS)—currently IFRS does not recognize the concept of development stage entities. The new guidance is effective for annual reporting periods starting after December 15, 2014 for both public and private companies. Early adoption is permitted.
ASU 2014-10 also amended guidance related to the consolidation of financial statements (Topic 810) related to development stage entities. Originally, the guidance provided an exception for consolidating development stage entities as variable interests if they met certain criteria. The new guidance removes this exception, and development stage entities will now be evaluated for consolidation under the same variable interest rules as non-development stage entities. This aspect of the new guidance is effective for annual periods beginning after December 15, 2015 and December 15, 2016 for public and private companies respectively. Early adoption is permitted.
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