FASB Proposes Eliminating Development Stage Entities
Will the Financial Accounting Standards Board (FASB) press DEL on DSE?

In November 2013, FASB issued a Proposed Accounting Standards Update (ASU) which, if issued, will eliminate the definition, accounting and disclosures under US GAAP (ASC Topic 915) for pre-operating entities, or Development Stage Entities (DSE).

A DSE is defined as an entity which devotes substantially all of its efforts in the establishment of a new business and for which:

Its planned principal operations have not commenced, or
No significant revenues from commenced planned principal operations have been generated

Current GAAP requires a DSE to provide cumulative quantitative “inception-to-date” financial information in the statements of income, cash flows and shareholders’ equity. The ASU will, in addition to reducing certain qualitative disclosures, eliminate the requirement for entities to present inception-to-date information.

In addition, current GAAP provides an exception for DSEs from being considered a variable interest entity (VIE) and subject to consolidation in certain circumstances. The elimination of DSE status will remove this exception.

This ASU would represent another step towards reducing differences with International Financial Reporting Standards (IFRS), as IFRS does not include the concept of a development stage entity or provide different guidance on presentation or disclosure for DSEs.

The provisions of this ASU apply both to public and private entities, and would be effective for year-end reporting and interim period reporting within that year. Early adoption would be permitted.

The FASB has requested interested parties to provide comments on the ASU no later than December 23, 2013. A copy of the ASU can be obtained from the FASB website at www.fasb.org.

To learn more or to inquire about the potential impact of these changes on a specific business, contact Scott A. Walters, Partner with Daszkal Bolton LLP. Scott may be reached at 561.886.5287 or swalters@dbllp.com.