The Financial Accounting Standards Board voted Wednesday to issue an exposure draft with proposals to improve financial reporting about public and private development-stage entities, easing the requirements for revenue recognition and measurement and other areas.

FASB plans to issue the exposure draft in the coming weeks. The proposal came from the Private Company Council, which works with FASB under the auspices of their parent organization, the Financial Accounting Foundation, to recommend changes in U.S. GAAP for private companies. The proposal is expected to improve the relevance and reduce the complexity of financial reporting for both public and private organizations.

Based on the recommendation of the PCC at its July 16, 2013 meeting, FASB added a project to its technical agenda to address financial reporting complexity for all organizations in the development stage. A development-stage entity is one 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 for their revenues, start-up costs and any other similar costs they incur, as required of 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.

However, various stakeholders have raised concerns with accounting standard-setters 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. Instead, they 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, FASB noted, and it is now common for many of these entities to remain in the development stage for several years or more.

“As part of our commitment to increase the relevance of financial reporting while reducing its cost and complexity, the FASB will issue an exposure draft aimed at improving reporting about development stage companies and organizations,” FASB chairman Russ Golden said in a statement. “The recommendation of the PCC prompted us to look at ways of addressing this issue for the benefit of both private and public companies, and we encourage all of our stakeholders to review and provide feedback on the document when we issue it.”

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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