Earlier this month, the Financial Accounting Standards Board issued Accounting Standards Update No. 2014-10, which effectively eliminates the classification of a development stage entity from accounting literature. Future amendments to guidance may result in development stage entities being considered variable interest entities (VIEs), in which an exception for the entities is currently available in situations where there is deemed an insufficient equity investment at risk.
By definition a development stage entity or DSE is an entity that devotes substantial effort, if not all of its efforts, towards generating operations for a new business or one for which the operations have not yet materially begun. Previously, DSE were required to not only present the current fiscal year activity but also provide the user of the financial statements the inception-to-date financial information and other additional incremental disclosures for the company in their annual statements. The new standard eliminates the concept of a development stage entity from U.S. GAAP and therefore, the current incremental reporting requirements for a DSE, including inception-to-date information, will no longer apply.
This guidance also clarifies that the disclosures in Topic 275, Risks and Uncertainties, apply to entities for which planned principal operations have not yet commenced and provides an example disclosure.
The early adoption of the new standard is permitted but will be required for organizations defined as public business entities in annual periods beginning after December 15, 2015, and for other organizations, in annual periods beginning after December 15, 2016.
For more information, please contact Charles A. Oshurak, Audit Advisory Senior Manager, within the Schneider Downs Audit and Assurance practice. To learn more about the services we provide to public companies and the PCAOB, visit our webpage!
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