FASB VOTES TO ISSUE EXPOSURE DRAFT TO IMPROVE FINANCIAL REPORTING ABOUT DEVELOPMENT STAGE ENTITIESPCC-recommended proposal would improve relevance and reduce complexity of financial reporting for both public and private organizations
Norwalk, CT—September 11, 2013—The Financial Accounting Standards Board (FASB) today voted to issue an Exposure Draft containing proposals intended to improve financial reporting about public and private development stage entities. The Board expects to issue the Exposure Draft in the coming weeks.
Based on the recommendation of the Private Company Council (PCC) at its July 16, 2013 meeting, the FASB added a project to its technical agenda to address financial reporting complexity for all organizations in the development stage. A development stage entity is one that devotes substantially all of its efforts to establishing a new business and for which (a) planned principal operations have not commenced or (b) planned principal operations have commenced, but have produced no significant revenue.
Current U.S. GAAP requires development stage entities to present the same basic financial statements and apply the same recognition and measurement requirements for revenues, start-up costs, and other similar costs incurred as required of established operating organizations. In addition, it requires development stage entities to present inception-to-date information about income statement line items, cash flows, and equity transactions.
Stakeholders have raised concerns about the cost and relevance of these additional presentation requirements. Many development stage entities with multiple products under development do not intend to ever manufacture a single product, but rather, may periodically sell the research and development to another business. Pharmaceutical, biotechnology, and technology industries are most likely to have long- term development stage entities affected by these requirements, and it is now common for many of these entities to remain in the development stage for several years or even in perpetuity.
“As part of our commitment to increase the relevance of financial reporting while reducing its cost and complexity, the FASB will issue an Exposure Draft aimed at improving reporting about development stage companies and organizations,” stated FASB Chairman Russ Golden. “The recommendation of the PCC prompted us to look at ways of addressing this issue for the benefit of both private and public companies, and we encourage all of our stakeholders to review and provide feedback on the document when we issue it.”
The Exposure Draft is expected to be issued by the end of October. It will be posted at www.fasb.org.
About the Financial Accounting Standards Board
Since 1973, the Financial Accounting Standards Board has been the designated organization in the private sector for establishing standards of financial accounting and reporting. Those standards govern the preparation of financial reports and are officially recognized as authoritative by the Securities and Exchange Commission and the American Institute of Certified Public Accountants. Such standards are essential to the efficient functioning of the economy because investors, creditors, auditors, and others rely on credible, transparent, and comparable financial information. For more information about the FASB, visit our website at www.fasb.org.