Accounting and Reporting by Development Stage Enterprises

• Date: 01 November 2014
• DOI: http://doi.org/10.1002/jcaf.22008
• Published date: 01 November 2014

69

© 2014 Wiley Periodicals, Inc.

Published online in Wiley Online Library (wileyonlinelibrary.com).

DOI 10.1002/jcaf.22008

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FASB

Oscar J. Holzmann and Paul Munter

Accounting and Reporting by

Development Stage Enterprises

In June 2014, the Financial

Accounting Standards Board

(FASB) issued Accounting

Standards Update (ASU) No.

2014–10, Development Stage

Entities (Topic 915): Elimination

of Certain Financial Report-

ing Requirements, Including an

Amendment to Variable Inter-

est Entity Guidance in Topic

810, Consolidation. This ASU

affects those entities previously

categorized under U.S. generally

accepted accounting principles

(GAAP) as development stage

entities and may also affect the

consolidation decisions of a

reporting entity with a variable

interest in a development stage

entity.

Except for the amend-

ments to Accounting Standards

Codification (ASC) 810, Con-

solidation , the ASU is effective

for public business entities for

annual and interim reporting

periods beginning after Decem-

ber 15, 2014. For other entities,

the ASU is effective for annual

periods beginning after Decem-

ber 15, 2014, and interim peri-

ods beginning after December

15, 2015. The amendments to

ASC 810 are effective one year

later for public business entities

and two years later for other

entities. However, early adoption

of the amendments is permitted

for any annual reporting period

or interim period for which the

entity’s financial statements have

not yet been issued.

1

BACKGROUND

According to the Master

Glossary of the ASC a “devel-

opment stage entity”

2 (DSE)

is “an entity which is devoting

substantially all of its efforts to

establishing a new business and

for which either of the following

conditions exists:

Planned principal opera-•

tions have not commenced.

Planned principal opera-•

tions have commenced, but

there has been no signifi-

cant revenue therefrom.”

More specifically, a DSE typ-

ically is an entity that is currently

devoting most of its efforts to

activities such as the following

3 :

Financial planning •

Raising capital •

Exploring for natural •

resources

Developing natural •

resources

Research and development •

Establishing sources of •

supply

Acquiring property, plant, •

equipment, or other oper-

ating assets, such as min-

eral rights

Recruiting and training •

personnel

Developing markets •

Starting up production •

FAS 7

Before June 1975 no spe-

cial standards of financial

accounting and reporting had

been issued for DSEs by the

Accounting Principles Board

(APB) or its predecessor, the

Committee on Accounting Pro-

cedure (CAP). In June 1975, the

FASB (or Board) issued State-

ment of Financial Account-

ing Standards No. 7 (FAS 7),

Accounting and Reporting by

Development Stage Enter-

prises , which became effective

for fiscal periods beginning on