Start Up Cost – GAAP
Start Up Cost – GAAP Must Expense Start-up Cost as an incurred versus capitalizing them. If you spend $5,000 on research or training, you must expense.
Defines Startup Activities – Capitalize or Expenses
The American Institute of CPAs accounting standards executive committee (AcSEC), issued an exposure draft of a Statement of Position, Reporting on the Start Up Cost – GAAP Activities.
The ED defines start-up activities broadly as “one-time activities related to opening a new facility, introducing a new product or service, conducting business with a new class of customer or beneficiary, initiating a new process in an existing facility, or commencing some new operation.” AcSEC noted that entities currently use different terms, such as preopening and pre-operating, to describe start-up activities and costs. The ED uses start-ups to describe all those costs and activities.
The ED requires that Start Up Cost – GAAP be expensed as incurred. Although specific guidance already exists for construction contractors, federal government contractors, airlines, and casinos, it all would be superseded by the proposed SOP.
AcSEC had considered whether Start Up Cost – GAAP should be capitalized, given that entities undertake start-up activities expecting them to result in future benefits. However, the committee concluded the future economic benefits of start-up activities have indeterminate lives and, if those costs were capitalized, amortization periods would be arbitrary. Also, it had not heard a good answer to the question, “If these costs are capitalized, what exactly is the asset?”
The ED, which applies to all nongovernmental entities, would affect the accounting for Start Up Cost – GAAP activities of entities in the development stage as well as those that are established operating entities, as defined by Financial Accounting Standards Board Statement no. 7, Accounting and Reporting by Development Stage Enterprises.
AcSEC believed the ED would reduce the current diversity in financial reporting. Currently, some entities capitalize costs while others expense as incurred. For years, AcSEC has heard complaints about inconsistencies in the financial reporting of start-up costs and about the lack of authoritative accounting guidance. In fact, the Securities and Exchange Commission staff has expressed concern periodically about the accounting for these costs.
The ED represents the next phase of AcSEC’s series of projects related to reporting on the Start Up Cost – GAAP of certain activities undertaken to create future economic benefits (for example, start-up, training, customer acquisition, and other similar activities). The first phase resulted in the issuance of SOP 93-7, Reporting on Advertising Costs.
Start up Cost - GAAP
How to Increase Profit Margins Through Virtual CFO Services
Tax Accountant said IRS delays start of tax season for individual returns would be postponed until February 17 with some as late as March
How Accountants in Miami Increase Client Satisfaction. If you are an Accountant not focused on improving your level of client satisfaction, you should be.