FASB proposes to remove guidance on development-stage entities

Published on: 08 Nov 2013

Yesterday, the FASB issued a proposed ASU1 that would remove the concept of a development-stage entity (DSE) from U.S. GAAP. The proposed ASU would (1) supersede ASC 915,2 which contains presentation and disclosure requirements unique to DSEs (e.g., inception-to-date information); (2) remove the guidance from ASC 810 on evaluating whether a DSE has sufficient equity at risk, which is one of the criteria used in determining whether an entity is a variable interest entity; and (3) remove all other references to DSEs in the FASB Accounting Standards Codification (the “Codification”).

Editor’s Note: The Codification Master Glossary defines a DSE as “an entity devoting substantially all of its efforts to establishing a new business and for which either of the following conditions exists: (a) planned principal operations have not commenced; (b) planned principal operations have commenced, but there has been no significant revenue therefrom.”

As it explains in the proposed ASU, the FASB decided to issue the proposal because users of DSE financial statements “do not find the inception-to-date information or the incremental disclosure requirements [of DSEs] to be decision useful. . . . Therefore, the proposed amendments would provide cost savings for preparers without reducing the relevance of information for users of financial statements.”

Although the proposal would modify the consolidation requirements, it does not contain transition requirements; however, the Board is requesting feedback from constituents on whether it should add transition guidance. In addition, although a proposed effective date has not been established, the proposal states that early adoption would be permitted.

For more information, see the FASB’s press release on the proposal.


1    FASB Proposed Accounting Standards Update, Development Stage Entities (Topic 915): Elimination of Certain Financial Reporting Requirements.

2    For titles of FASB Accounting Standards Codification (ASC) references, see Deloitte’s "Titles of Topics and Subtopics in the FASB Accounting Standards Codification."

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