2. Supersede the Master Glossary term Development Stage Entity, with a link to transition paragraph 810-10-65-5, as follows:

An entity devoting substantially all of its efforts to establishing a new business and for which either of the following conditions exists:

3. Supersede Topic 915, Development Stage Entities, with a link to transition paragraph 915-10-65-1.

4. Add paragraph 915-10-65-1 and its related heading as follows:

915-10-65-1 The following represents the transition and effective date information related to Accounting Standards Update No. 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:

5. Amend paragraph 230-10-05-3, with a link to transition paragraph 915-10-65-1, as follows:

230-10-05-3 Other Topics, including industry-specific Topics, may have Statement of Cash Flows Subtopics that address the Topic-specific requirements for the statement of cash flows. The guidance in those Subtopics is intended to be incremental to the guidance otherwise established in this Statement of Cash Flows Topic. Topics with incremental Statement of Cash Flows Subtopics are:

6. Supersede paragraph 230-10-60-5 and its related heading, with a link to transition paragraph 915-10-65-1, as follows:

7. Amend paragraph 275-10-05-2, with a link to transition paragraph 915-10-65-1, as follows:

275-10-05-2 The central feature of this Subtopic's disclosure requirements is selectivity: specified criteria serve to screen the host of risks and uncertainties that affect every entity so that required disclosures are limited to matters significant to a particular entity. The disclosures focus primarily on risks and uncertainties that could significantly affect the amounts reported in the financial statements in the near term or the near-term functioning of the reporting entity. The risks and uncertainties this Subtopic addresses can stem from any of the following:

8. Amend paragraphs 275-10-50-1 through 50-2 and its related heading and add paragraph 275-10- 50-2A, with a link to transition paragraph 915-10-65-1, as follows:

275-10-50-1 All of the disclosures required by this Subtopic shall be included in the basic financial statements. Reporting entities shall make disclosures in their financial statements about the risks and uncertainties existing as of the date of those statements in the following areas:

These four areas of disclosure are not mutually exclusive. The information required by some may overlap. Accordingly, the disclosures required by this Subtopic may be combined in various ways, grouped together, or placed in diverse parts of the financial statements, or included as part of the disclosures made pursuant to the requirements of other Topics.

275-10-50-2 If an entity has commenced planned principal operations, the entity's financial

Financial

statements shall include a description of the major products or services the reporting entity sells or provides and its principal markets, including the locations of those markets. If the entity operates in more than one business, the disclosure also shall also indicate the relative importance of its operations in each business and the basis for this determination—for example, assets, revenues, or earnings. Not-for-profit entities' (NFPs') disclosures should briefly describe the principal services performed by the entity and the revenue sources for the entity's services. Disclosures about the nature of operations or activities need not be quantified; relative importance could be conveyed by use of terms such as predominately, about equally, or major and other.

275-10-50-2A An entity that has not commenced principal operations shall provide disclosures about the risks and uncertainties related to the activities in which the entity is currently engaged and an understanding of what those activities are being directed toward.

9. Amend the heading preceding paragraph 275-10-55-2 and add paragraphs 275-10-55-3A through 55-3B and their related heading, with a link to transition paragraph 915-10-65-1, as follows:

275-10-55-1 The kinds of disclosures required by this Subtopic are illustrated in this Section. Each consists of a situation in which the disclosure would likely be made or not made and a discussion of how and why the illustrative disclosure complies with the requirements of this Subtopic or why no disclosure is required by this Subtopic. Some of the concentrations described in the Examples may illustrate more than one of the categories of concentrations given in paragraph 275-10-50-18(a) through (d).

275-10-55-2 This Example illustrates the disclosures required by paragraph 275-10-50-2. Conglomerate, Inc. is a U.S.-based multinational entity. Conglomerate's principal lines of business are automotive products, aerospace products and technologies, textiles, and nonprescription health-care products. The principal markets for Conglomerate's automotive and aerospace products and technologies are European- and Far East-based industrial concerns. Textiles are sold primarily to U.S. clothing manufacturers, while nonprescription health-care products are sold to wholesale and retail distributors worldwide. The operations of Conglomerate in any one country are not significant in relation to its overall operations. The following illustrates disclosure of the nature of operations required by this Subtopic.

275-10-55-3 This disclosure provides all of the following:

275-10-55-3B The disclosure in paragraph 275-10-55-3A provides all of the following:

10. Supersede paragraph 340-10-60-9 and its related heading, with a link to transition paragraph 915-10-65-1, as follows:

340-10-60-9 Paragraph superseded by Accounting Standards Update 2014-10.

For the assessment of recoverability of capitalized or deferred costs in a development stage subsidiary, see Section 915-810-35

.

11. Amend paragraph 720-15-15-1, with a link to transition paragraph 915-10-65-1, as follows:

720-15-15-1 The guidance in this Subtopic applies to all nongovernmental entities, including not-for-profit entities (NFPs).

the following

:

12. Supersede paragraph 810-10-15-16, with a link to transition paragraph 81010-65-5, as follows:

13. Add paragraph 810-10-65-5 and its related heading as follows:

14. Amend paragraph 835-20-55-2, with a link to transition paragraph 915-10-65-1, as follows:

835-20-55-2 This paragraph provides clarification of the phrase when planned principal operations begin (in paragraph 835-20-15-6(d)) to be able to determine when the investment in the investee that is the qualifying asset is ready for its intended use and interest capitalization ceases.

The phrase in this Subtopic has the same meaning as in Topic 915. That Topic considers an entity to be in the development stage if planned

Planned principal operations may not have

not

commenced

and if

the entity it is devoting substantially all of its efforts to establishing a new business through activities such as the following:

15. Supersede paragraph 980-10-15-6, with a link to transition paragraph 91510-65-1, as follows:

16. Add paragraph 915-10-00-1 as follows:

17. Add paragraph 915-205-00-1 as follows:

915-205-00-1 The following table identifies the changes made to this Subtopic.

18. Add paragraph 915-210-00-1 as follows:

19. Add paragraph 915-215-00-1 as follows:

20. Add paragraph 915-225-00-1 as follows:

21. Add paragraph 915-230-00-1 as follows:

22. Add paragraph 915-235-00-1 as follows:

23. Add paragraph 915-340-00-1 as follows:

24. Add paragraph 915-605-00-1 as follows:

25. Add paragraph 915-810-00-1 as follows:

26. Amend paragraph 230-10-00-1, by adding the following items to the table, as follows:

230-10-00-1 The following table identifies the changes made to this Subtopic.

27. Amend paragraph 275-10-00-1, by adding the following items to the table, as follows:

275-10-00-1 The following table identifies the changes made to this Subtopic.

28. Amend paragraph 340-10-00-1, by adding the following item to the table, as follows:

340-10-00-1 The following table identifies the changes made to this Subtopic.

29. Amend paragraph 720-15-00-1, by adding the following item to the table, as follows:

30. Amend paragraph 810-10-00-1, by adding the following items to the table, as follows:

810-10-00-1 The following table identifies the changes made to this Subtopic.

31. Add paragraph 835-20-00-1 as follows:

32. Amend paragraph 980-10-00-1 as follows:

980-10-00-1 The following table identifies the changes made to this Subtopic.

Mr. Smith dissents from the issuance of the guidance in this Update. Mr. Smith notes that the original purpose of this project was to reduce the cost and complexity associated with the inception-to-date information required under U.S. GAAP for development stage entities. Mr. Smith observes that the Board expanded the scope of the project to eliminate the concept of the development stage entity and the exception to applying the guidance on variable interest entities for development stage entities that meet the requirements specified in paragraph 810-10-15-16. Mr. Smith notes that the basis for conclusions of FASB Interpretation No. 46 (revised December 2003), Consolidation of Variable Interest Entities, specifically addresses the Board's justification for providing the exception that the guidance in this Update removes. Mr. Smith also notes that several comment letters indicated that paragraph 810-10-15-16 not only is used by development stage entities, but also is used by analogy to evaluate the application of guidance on variable interest entities to multiphased entities. Sufficient information was not presented during the deliberations of this project to enable Mr. Smith to vote to overturn the previous Board's conclusion for Interpretation 46(R).

BC3. The Private Company Council (PCC) added a project to its agenda to determine whether the inception-to-date presentation requirements for development stage entities, codified in Topic 915, should be amended or eliminated. The PCC initially requested that the staff determine whether the cost to preparers to provide the inception-to-date information required by Topic 915 was supported by benefits to users of private company (nonpublic) financial statements. Staff research on this issue found that the issue also is relevant for public companies. As a result, the Board added the project to its agenda at the July 16, 2013 meeting of the PCC and expanded the scope of the project to address the concerns of both nonpublic companies and public companies about Topic 915 reporting requirements for development stage entities.

BC4. Most of the guidance in Topic 915 was previously included in FASB Statement No. 7, Accounting and Reporting by Development Stage Enterprises, and has not been amended substantively since that Statement's issuance in June 1975. Statement 7 became effective for fiscal periods beginning on or after January 1, 1976, and required that development stage entities also apply U.S. GAAP applicable for established operating entities. Thus, development stage entities were required to present the same basic financial statements and follow the same recognition and measurement requirements for revenues, start-up costs, and other similar incurred costs as do established operating entities.

BC5. Topic 915 provided general presentation and disclosure requirements for an entity in the development stage. The guidance required a development stage entity to (a) present inception-to-date information in the statements of income, cash flows, and shareholder equity, (b) label the financial statements as those of a development stage entity, (c) disclose a description of the development stage activities in which the entity is engaged, and (d) 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. Those incremental requirements resulted in financial statements that were potentially more costly to prepare and audit than those of established operating entities.

BC6. Discussions about the amendments with investors indicated that the inception-to-date information provides little information relevant to their investment considerations. In addition, the accumulated loss information within the inception-to-date information often includes costs related to (a) more than one product that is under development or (b) products or development strategies that may have been abandoned and, therefore, are no longer relevant. Instead, investors stated that they consider the adequacy of current and future cash flows, the feasibility of the business activities under development, and other nonfinancial market indicators or conditions that may affect an entity's overall success when making their investment decisions.

BC7. In November 2013, the Board issued proposed Accounting Standards Update, Development Stage Entities (Topic 915): Elimination of Certain Financial Reporting Requirements (2013 Exposure Draft), which proposed superseding Topic 915 along with a proposed conforming amendment to eliminate paragraph 810-10-15-16. The 45-day comment period ended on December 23, 2013. The Board received 24 comment letters, mainly from accounting firms and state CPA societies. The majority of respondents agreed with the guidance in the proposed Update.

BC8. Some stakeholders stated that the guidance in Topic 915 has become onerous for some development stage entities because the nature of some of those entities has changed since the issuance of Statement 7. A review of the rationale for Statement 7 indicated that the FASB was aware that some entities may remain in the development stage for several years. However, in its deliberations, the Board at that time did not appear to contemplate development stage entities that would be long-lived or perpetual in nature.

BC9. Currently, development stage entities often remain in the development stage for many years before the preparation of U.S. GAAP financial statements may be required and before engaging an accounting firm to audit those statements. As a result, some entities incur significant audit costs related to their efforts to compile and present inception-to-date cumulative information in preparing their first financial statements under U.S. GAAP. In addition, development stage entities often issue complex equity instruments (warrants, preferred stock, unique terms on dilution, and subsequent issuances) that can require numerous pages of disclosure when presenting equity transactions from inception to date for each reporting period. Stakeholders stated that as development stage entities mature or seek to become public companies, they also may change auditors. The new auditors may perform detailed audit procedures related to the inception-to-date information, which may result in significant increased costs.

BC10. Additionally, there are entities that identify themselves as development stage entities that do not plan to produce or market any product under development. Instead, the entity's primary purpose is to perform research and development on many products and to sell potentially successful product developments to manufacturing and marketing-driven firms. Many of those entities never progress beyond the development stage. Examples of those types of entities frequently are found in industries such as pharmaceuticals, biotechnology, and software development.

BC11. Since the issuance of Statement 7 in 1975, the way users obtain financial information, particularly for public companies, has changed dramatically, and it has become much easier for individuals interested in specific types of information to gather and aggregate that information in numerous ways. In particular, public filings can be searched and aggregated to accommodate user needs, if any, for inception-to-date information through public access to historical filings via the internet; research tools such as the Electronic Data Gathering, Analysis, and Retrieval system (EDGAR); web-based data service providers; and eXtensible Business Reporting Language (XBRL). Therefore, similar inception-to-date information can be gathered from publicly available sources without that information being specifically required to be accumulated and presented in current-period financial statements. Discussions with users of financial statements of nonpublic entities indicated that they also obtain information from management to meet specific information needs not met by general-purpose financial statements.

BC12. The Board decided to eliminate the requirement for development stage entities to present inception-to-date information in the statements of income, cash flows, and shareholder equity on the basis of stakeholder feedback, which included respondents to the Exposure Draft. Respondents indicated that the information is not useful to users of financial statements of development stage entities and is costly for preparers to provide. The Board stated that the original purpose of the development stage entity distinction set out in Statement 7 is no longer relevant. Additionally, for public companies, the inception-to-date information is publicly available through various data research tools (see paragraph BC11), and for private companies, this information may be available via direct user access to management.

BC13. Discussions with investors indicated that the remaining requirements discussed in paragraph BC5 were not decision useful. Investors indicated that they do not find the description of development stage entities useful because they do not distinguish those types of entities in that manner. Disclosures about the activities in which the entity is engaged usually are evident in the entity's Management's Discussion and Analysis (SEC registrants) or as part of the documents given to potential investors and lenders to support investment or funding requests. Therefore, the remaining disclosures in Topic 915 do not appear to provide decision-useful information. Thus, the Board decided to eliminate those requirements.

BC14. Several stakeholders suggested eliminating the remaining disclosures in Topic 915 and clarifying that the risk and uncertainty disclosure requirements in Topic 275 should apply to entities that had not commenced planned principal operations. That clarification would ensure that the information in Topic 915 about an entity's current activities is presented consistently in one location in an entity's financial statements and streamline disclosure requirements. Respondents to the Exposure Draft agreed that all other remaining disclosure requirements in Topic 915 should be eliminated. Respondents and individuals contacted through outreach efforts suggested that the disclosures in Topic 275 would be more useful if they included information about (a) what the intended operations of the entity are, (b) the activities in which the entity is currently engaged, and (c) when management plans to begin operations. The Board decided that the suggested alternative disclosures are more prescriptive than the more broad nature of the disclosure guidance in Topic 275. Additionally, the Board decided that the suggested disclosure in item (c) above relates to forwardlooking information that may be difficult to apply for some entities that have not commenced planned principal operations.

BC15. Even though development stage entities are within the scope of Topic 275, the Accounting Standards Codification uses the term operations rather than the term activities. Therefore, some entities that have not commenced planned principal operations may not consider the disclosure requirements in Topic 275 to be applicable to them. The Board decided to clarify that all entities, including those that have not commenced planned principal operations, should disclose the risks and uncertainties associated with their operations or activities undertaken in preparation for planned operations. The Board added an illustration to Topic 275 in the amendments in this Update to clarify this requirement.

BC16. An entity is subject to consideration for consolidation under the guidance in the Variable Interest Entities Subsections of Subtopic 810-10 if, by design, any of the conditions in paragraph 810-10-15-14 exist. When evaluating whether a development stage entity has insufficient equity investment at risk (as described in paragraph 810-10-15-14), the evaluation should focus on whether the entity has sufficient equity at risk to permit it to finance the activities in which it is currently engaged and whether the legal entity's governing documents and contractual arrangements allow additional equity investments. In practice, the phrase activities in which it is currently engaged is being interpreted to mean activities in a particular funding phase or activities required to meet a specific funding milestone. However, a development stage entity must reconsider the sufficiency of the equity investment at risk as required by paragraph 810-10-35-4, for example, if the legal entity undertakes additional activities or acquires additional assets. The term current activities is ambiguous, and its interpretation is not limited to situations in which there are clearly defined funding phases or milestones. Because of that ambiguity and the requirement to reconsider the sufficiency of the equity investment at risk if additional activities are undertaken or additional assets are acquired, inconsistent consolidation decisions may result.

BC17. The amendments eliminate the exception that a development stage entity should be assessed on the current activities in which it is involved. Also, under the amendment, all entities that, by design, meet any of the conditions in paragraph 810-10-15-14(a) through (c) are now subject to further consideration for consolidation under the guidance in the Variable Interest Entities Subsections. All legal entities will be evaluated using the guidance on the sufficiency of equity investment at risk in paragraphs 810-10-25-45 through 25-47 to assess the amount of the total equity investment at risk that is necessary to permit a legal entity to finance its activities without additional subordinated financial support.

Because of the evolution of the nature and complexity of some development stage entities since the guidance in Topic 915 was developed and the significant judgment required to assess “current activities” of those entities, the Board decided that the application of the quantitative and qualitative guidance in paragraphs 810-10-25-45 through 25-47 that requires consideration of the design of the development stage entity and the apparent intentions of the parties that created it will result in more consistent and appropriate consolidation decisions across all entities. The Board recognizes that some development stage entities that were previously excluded from consolidation consideration may need to be evaluated further for consolidation.

BC18. The Board considered the possible use of a long-lived entity or a perpetual development stage entity to circumvent the objective of the consolidation requirements in Topic 810 in its discussion on eliminating the Topic 810 exception for development stage entities. The Board decided that the exception in paragraph 810-10-15-16 could be interpreted inappropriately to provide an opportunity for long-lived or perpetual development stage entities to be created and potentially avoid consolidation in perpetuity. An entity purposely structured as a perpetual development stage entity could avail itself of the exception in paragraph 810-10-15-16 and avoid consolidation even though it may have capital structures similar to nondevelopment stage entities that are consolidated. In its discussion, the Board also considered EITF Issue No. 99-16, “Accounting for Transactions with Elements of Research and Development Arrangements,” which addresses the issue of entities creating different classes of stock with the call right to purchase developed research. Those entities were able to avoid or change the manner in which research and development costs were recognized. The Board noted that Issue 99-16 addresses certain specific arrangements that could occur with development stage entities but does not comprehensively serve as a substitute for the consolidation analysis in Topic 810. Additionally, the rationale for Statement 7 indicated that the Board at that time was aware that some entities may remain in the development stage for several years. However, in its deliberations of Statement 7, that Board did not appear to contemplate development stage entities that would be long lived or perpetual in nature. Additionally, no conceptual basis exists to support different consolidation guidance for development stage entities. Accordingly, the Board decided at this time to eliminate the guidance on variable interest entities for development stage entities in paragraph 810-10-15-16 and require all entities to apply the same guidance for consolidation decisions.

BC19. A few respondents indicated that they consider paragraph 810-10-15-16 by analogy to assess the identification of the primary beneficiary in nondevelopment stage, multiphased entities. In assessing who has power over the activities that most significantly affect a variable interest entity's economic performance, those respondents assess only the current “phase” of the entity's activities when there are multiple phases with differing activities and significant uncertainties exist. That assessment could result in the designation of different primary beneficiaries from one phase to another. Further outreach indicated apparent similarities between accounting firms when determining the primary beneficiary in the cases in which there were multiple phases with uncertainties associated with getting to the next phase of activities. However, there appeared to be a difference in how some of those respondents arrive at that conclusion. While some of those respondents referenced paragraph 810-10-15-16, others appeared to be performing a more general analysis of significant activities and asking whether there are uncertainties that should be considered in assessing the likelihood of a multiphased entity reaching subsequent “phases” of activities and determining the appropriate primary beneficiary. One of those respondents suggested that if paragraph 810-10-15-16 was eliminated, it would be useful if the Board provided an example that demonstrates how to identify the primary beneficiary when analyzing a variable interest entity that has multiple distinct phases. Some Board members consider application by analogy to determine that the primary beneficiary is beyond the explicit exception provided in paragraph 810-10-15-16. Thus, they see no reason that the elimination of an unrelated provision should affect the primary beneficiary determination if performed properly under existing guidance. Furthermore, the Board considered that suggestion to be beyond the scope of this project.

BC20. The Board decided to remove the definition of development stage entity from the Master Glossary of the Accounting Standards Codification on the basis of the effects of its decisions to eliminate any special reporting requirements by development stage entities. The definition will be removed concurrent with the elimination of paragraph 810-10-15-16, which relies on that definition.

BC21. The Board decided that if an entity is reporting the inception-to-date information and the other remaining disclosure requirements of Topic 915, the amendments in this Update should be applied retrospectively except for the clarification to Topic 275, which shall be applied prospectively. For public business entities, the changes are effective for annual reporting periods beginning after December 15, 2014, and interim reporting periods therein. For other entities, the changes are effective for annual reporting periods beginning after December 15, 2014, and interim reporting periods beginning after December 15, 2015. Entities are allowed to apply such guidance early 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.

BC22. The Board also decided that if an entity's consolidation decision changes because the Board eliminated the exception for development stage entities in paragraph 810-10-15-16, the amendments in this Update should be applied retrospectively. The transition guidance for the retrospective application is the same transition guidance that the FASB provided in Statement No. 167, Amendments to FASB Interpretation No. 46(R), if an entity had to consolidate a variable interest entity as a result of a change in accounting. The Board decided to provide additional time for entities to apply the guidance in Topic 810 because, for many, this may be the first time that the entities will apply the variable interest entity consolidation guidance and they may need time to perform the variable interest analyses, aggregate, and draft new variable interest disclosures and address issues that may arise if their consolidation decision changes. For public business entities, the changes are effective for annual reporting periods beginning after December 15, 2015, and interim periods therein. For other entities, the changes are effective for annual reporting periods beginning after December 15, 2016, and interim reporting periods beginning after December 15, 2017. Entities are allowed to apply that guidance early 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).

BC23. The objective of financial reporting is to provide information that is useful to present and potential investors, creditors, donors, and other capital market participants in making rational investment, credit, and similar resource allocation decisions. However, the benefits of providing information for that purpose should justify the related costs. Present and potential investors, creditors, donors, and other users of financial information benefit from improvements in financial reporting, while the costs to implement new guidance are borne primarily by present investors. The Board's assessment of the costs and benefits of issuing new guidance is unavoidably more qualitative than quantitative because there is no method to objectively measure the costs to implement new guidance or to quantify the value of improved information in financial statements.

BC24. The Board does not anticipate that development stage entities will incur significant costs as a result of the amendments in this Update. Rather, the Board anticipates that entities subject to the existing development stage entity requirements will avoid existing data accumulation and audit costs in certain circumstances (including circumstances in which those costs could be significant). Discussions with investors and other users of financial statements of development stage entities indicated that they do not find the inception-to-date information or the remaining disclosure requirements provided by development stage entities to be decision useful. Therefore, the amendments provide cost savings for preparers without reducing information relevance for users of financial statements.

BC25. The Board understands that some investors in development stage entities that are currently using the exception language in paragraph 810-10-15-16 may incur costs to evaluate their interests in those entities for possible consolidation using the guidance in paragraphs 810-10-25-45 through 25-47. The Board decided that a single set of consolidation criteria applied by all reporting entities will benefit users of financial statements by providing more relevant and consistent consolidation decisions across all entities.