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 US 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 organisations. 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.
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