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The FASB has issued an amendment to reduce reporting requirements for development stage entities (Topic 915). The FASB has determined that the incremental cost associated with the additional reporting requirements for development stage entities was not necessary based on the responses received by the users of these financial statements. The FASB has determined based on responses received that the inception-to-date information, and certain other disclosures currently required under U.S. generally accepted accounting principles (GAAP) is no longer relevant to users of the financial statements. The amendment will remove the definition of a development stage entity from the Master Glossary of the Accounting Standards Codification, thereby removing the financial reporting distinction between development stage entities and other reporting entities from U.S. GAAP. In addition, the amendments will eliminate the requirements for development stage entities to (1) present inception-to-date information in the statements of income, cash flows, and shareholder equity, (2) label the financial statements as those of a development stage entity, (3) disclose a description of the development stage activities in which the entity is engaged, and (4) disclose in the first year in which the entity is no longer a development stage entity that in prior years it had been in the development stage.
Another key aspect of the amendment as noted in the amendment is the removal of paragraph 810-10-15-16. Paragraph 810-10-15-16 states that a development stage entity does not meet the condition in paragraph 810-10-15-14(a) to be a variable interest entity if (1) the entity can demonstrate that the equity invested in the legal entity is sufficient to permit it to finance the activities that it is currently engaged in and (2) the entity's governing documents and contractual arrangements allow additional equity investments. Under the amendment, all entities within the scope of the Variable Interest Entities Subsections of Subtopic 810-10 Consolidation – overall will be required to evaluate whether the total equity investment at risk is sufficient using the guidance provided in paragraphs 810-10-25-45 through 25-47, which requires both qualitative and quantitative evaluations.
As per FASB update 2014-10 "Development Stage Entities" the effective date of the amendment is as follows:
The amendment related to the elimination of inception-to-date information and the other remaining disclosure requirements of Topic 915 should be applied retrospectively except for the clarification to Topic 275, which shall be applied prospectively. For public business entities, this amendment is effective for annual reporting periods beginning after December 15, 2014, and interim periods therein. For other entities, this amendment is effective for annual reporting periods beginning after December 15, 2014, and interim reporting periods beginning after December 15, 2015. For public business entities, the amendment eliminating the exception to the sufficiency-of-equity-at-risk criterion for development stage entities in paragraph 4 810-10-15-16 should be applied retrospectively for annual reporting periods beginning after December 15, 2015, and interim periods therein. For all other entities, the amendment to Topic 810 should be applied retrospectively for annual reporting periods beginning after December 15, 2016, and interim reporting periods beginning after December 15, 2017. Early application of each of the amendments is permitted for any annual reporting period or interim period for which the entity's financial statements have not yet been issued (public business entities) or made available for issuance (other entities). Upon adoption, entities will no longer present or disclose any information required by Topic 915 "Development Stage Entities."
(Information for this article was derived from Financial Accounting Standard Board (FASB) update 2014-10 Development Stage Entities.)