The Financial Accounting Standards Board recently announced plans to issue an exposure draft in the coming weeks with proposals to improve financial reporting about public and private development-stage entities, easing the requirements for revenue recognition and measurement and other areas. The proposal is expected to improve the relevance and reduce the complexity of financial reporting for both public and private organizations. The proposal came from the Private Company Council, which works with FASB to recommend changes in U.S. GAAP for private companies.
During its July 2013 meeting, FASB added a project to its technical agenda to address financial reporting complexity for all organizations in the development stage, which is an entity that devotes substantially all of its efforts to establishing a new business and for which either planned principal operations have not commenced, or the planned principal operations have commenced but have not yet produced significant revenue.
Under current U.S. GAAP, development-stage entities are required to present the same basic financial statements and apply the same recognition and measurement requirements as established operating organizations. In addition, U.S. GAAP requires development-stage entities to present inception-to-date information about income statement line items, cash flows and equity transactions. It is now common for many of these entities to remain in the development stage for several years or more.
However, various stakeholders have raised concerns with accounting standard-setters about the cost and relevance of these additional presentation requirements, especially within the pharmaceutical, biotechnology and technology industries which are most likely to have long-term development stage entities affected by these requirements.
The exposure draft is expected to be issued by the end of October and will be posted at www.fasb.org
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