The Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2014-10 Development Stage Entities (Topic 915): Elimination of Certain Financial Reporting Requirements, Including an Amendment to Variable Interest Entities Guidance in Topic 810, Consolidation, which eliminates development stage entities from U.S. generally accepted accounting principles (U.S. GAAP).

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The Financial Accounting Standards Board (FASB)
issued Accounting Standards Update (ASU) 2014-10
Development Stage Entities (Topic 915): Elimination of
Certain Financial Reporting Requirements, Including
an Amendment to Variable Interest Entities Guidance
in Topic 810, Consolidation, which eliminates
development stage entities from U.S. generally
accepted accounting principles (U.S. GAAP).
Removal of Development Stage Entities
The ASU removes the concept of development stage
entities from U.S. GAAP and, therefore, entities that
previously reported as development stage entities
are expected to have reductions in costs for the
preparation of financial statements. These savings are
achieved by not being required to evaluate if an entity
meets the definition of a development stage entity
and by the removal of presentation and disclosure
requirements, including:
1. to present inception-to-date information in the
statements of income (operations), cash flows,
and shareholders’ equity,
2. to label the financial statements as those of a
development stage entity,
June 2014
Development Stage Entities Removed from U.S. GAAP
3. to disclose a description of the development stage
activities in which the entity is engaged and
4. to disclose in the first year in which the entity is
no longer a development stage entity that it was
previously a development stage entity.
Disclosure of Risks and Uncertainties
The ASU includes an update to Topic 275 Risks and
Uncertainties that requires, when an entity has not
begun principal operations, to include in its description
of operations the activities that it is currently engaged
in. Such an entity is also required to disclose risks
and uncertainties related to those activities that it
has engaged in and an understanding of what those
activities are directed towards.
Variable Interest Entities
In existing U.S. GAAP, when a development stage
entity is evaluated to determine if it has sufficient equity
under ASC 810-10-15-14(a) a reporting entity made the
evaluation based on whether the development stage
entity could: 1) demonstrate that the equity invested in
the development stage entity was sufficient to permit
it to finance its current activities, and 2) whether the
development stage entity’s governing and contractual
arrangements allowed additional equity investments.
This guidance is removed by ASU 2014-10, therefore
reporting entities with investments in entities that
formerly qualified as development stage entities will
be required to follow the broader guidance related to
ASC 810-10-15-14(a), which requires an assessment
of whether the total equity at risk for the entity is

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sufficient to permit it to finance its activities without
additional subordinated financial support.
As a result, many entities that formerly qualified as
development stage entities may not be considered
VIEs. If a former development stage entity is
determined to be a VIE there will be an increase in
required disclosure or consolidation by investors in
those entities.
Transition
When adopted, the removal of requirements
for development stage entities under Topic 915
Development Stage Entities is required to be applied
retrospectively, while the additional disclosure
requirements under Topic 275 Risks and Uncertainties
are required prospectively. These two components of
ASU2014-10areeffectiveforannualperiodsbeginning
after December 15, 2014, and interim periods therein,
for public business entities. For all other entities
the effective date is annual periods beginning after
December 15, 2014 and interim reporting periods
beginning after December 15, 2015.
The elimination of the development stage entity
exception for determination of the sufficiency or
equity at risk under Topic 810 Consolidation is applied
retrospectively. Public business entities are required
to adopt the guidance for annual reporting periods
beginning after December 15, 2015, and interim
periods therein, while the effective date for other
entities is periods beginning after December 15, 2016
and interim periods beginning after December 15,
2017.
Early adoption is permitted for each amendment
by public business entities for any period for which
financial statements have not yet been issued and
for financial statements that have not yet been made
available for issuance for all other entities.
For More Information
If you have any specific questions, comments or
concerns, please share them with Ernie Baugh or
James Comito of MHM’s Professional Standards
Group or your MHM service professional. You can
reach Ernie at ebaugh@mhm-pc.com or 423.870.0511
and James at jcomito@cbiz.com or 858.795.2029.