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Start Up Cost – GAAP

Start up Cost – GAAP

Defines Start up 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 Costs of Start-Up 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 preoperating, to describe start-up activities and costs. The ED uses start-up to describe all those costs and activities.

Main Provisions

The ED requires that start-up costs 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already exists for construction contractors, federal government contractors, airlines and casinos, it all would be superseded by the proposed SOP.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 costs 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 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 costs 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.


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Gustavo A Viera is the managing partner of Gustavo A Viera, PA. His experience spans more than 25 years. He started his career in public accounting at PriceWaterHouseCoopers where reached the level senior audit manager. His Fortune 500 experience includes positions as CFO – Latin America Region for both Hewlett Packard and Telefonica of Spain. Gustavo also writes a blog twice a week that addresses trending accounting and tax issues. He is an SBA Advisor and teaches workshops for aspiring entrepreneurs. His offices are located in Palmetto Bay, Coral Gables and Brickell Avenue in Miami FL, and is admitted to practice in the State of Florida as a licensed Certified Public Accountant. Gus welcomes questions and he can be reached at Gustavo A Viera PA 15715 S Dixie Hwy. Ste 409, Miami Fl. 33157, 2332 Galiano Street, 2nd Floor, Coral Gables, Fl 33134 or 1111 Brickell Avenue11th Floor Miami, FL 33131 Telephone 786-250-4450.

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