By: Ronnie B. Eubanks, Jr., CPA
Elimination of Certain Financial Reporting Requirements, Including an Amendment to Variable Interest Entities Guidance in Topic 810, Consolidation
In years past, a Development Stage Entity (DSE) was defined by ASC 915 as “an entity devoting substantially all of its efforts to establishing a new business and for which either of the following conditions exists: (a) planned principal operations have not commenced or (b) planned principal operations have commenced, but there has been no significant revenue therefrom.” The requirements of ASC 915 involved primarily special reporting and illustrating the financial statement to reflect not only one or two years of financial data, but also required the presentation of an income statement, cash flow statement and stockholder transactions from inception of the entity through the current date. As a result, financial statements of a DSE would typically have an extra column that aggregates all activity from the date the business began through the reporting date. Such an aggregation of several years of data can be overly burdensome and costly.
Based on this definition, the typical DSE is in the early stages of operations and as with most such entities, financial resources should be utilized on operations, business growth or useful and necessary expenditures. This additional reporting standard created an extra cost for the entity when providing financial statements in accordance with US GAAP.
In their efforts to improve financial reporting for small and medium sized entities, FASB considered the importance and usefulness of the specific reporting requirements for DSE’s. The Board found that many users of DSE’s financial statements considered the additional since inception data to have “limited relevance and is generally not decision useful”. As a result of FASB’s findings, ASU 2014-10 was issued to eliminate the reporting requirements for DSEs. ASU 2014-10 not only eliminates the added burden of reporting under the DSE guidance, but also removed the definition of a DSE from professional standards.
While the ASU eliminates DSE reporting, it adds an additional requirement to ASC 275-10 to enhance the disclosures for risks and uncertainties. As a result of this ASU, an entity must disclose the nature of its operations as well as include relevant information regarding the activities in which the entity is currently engaged if principal operations have not commenced.
Finally, ASU 2014-10 removes ASU section 810-10-15-16 requiring a DSE to make certain qualitative and quantitative evaluations as to whether consolidation may be required.
For public business entities, the presentation and disclosure requirements in ASU 915 will no longer be required for the first annual period beginning after December 15, 2014. The revised consolidation standards are effective one year later, in annual periods beginning after December 15, 2015. Early adoption is permitted.
For other organizations, the presentation and disclosure requirements in ASU 915 will no longer be required for the first annual period beginning after December 15, 2014. The revised consolidation standards are effective two years later, in annual periods beginning after December 15, 2016. Early adoption is permitted.
Ronnie B. Eubanks, Jr., CPA is the shareholder in charge of the Audit and Accounting department for Thomas, Knight, Trent, King and Company in Durham, NC. Ronnie has served many different industries over his 18 year career, including manufacturing, high-tech and life science companies, service companies, not-for-profit organizations, construction contractors and wholesale distributors. His knowledge from these organizations has provided him with strong insight into what is needed for an organization to grow and meet their goals, as well as how to avoid unnecessary strains on an organization during its infancy stage.
Ronnie has taught evening classes at Durham Technical Community College to small business owners. Curriculum focused on general accounting and bookkeeping set-up, understanding the “science” of accounting, evaluating when a business is heading in the wrong direction, understanding financial statements and financial projections, ratio analysis, and how to monitor and project cash flow needs. In addition, Ronnie has volunteered on many occasions teaching and advising many start-up companies throughout the Triangle region.
Ronnie is a member of the American Institute of Certified Public Accountants (AICPA) and the North Carolina Association of Certified Public Accountants (NCACPA). He is the past chair of the NCACPA Accounting and Auditing Committee. Ronnie currently serves on the board of directors and the finance committee for The Carolina Theatre of Durham. He is also the past chair of the North Carolina Young CPA Cabinet (YCPA) and as well as the past chair for the first YCPA conference in North Carolina. He is an active member of the North Carolina State Alumni Association, Greater Durham Chamber of Commerce, and the CED (Center for Entrepreneurial Development), and very active in his community’s activities.