start-up costs

ASC 340-915 formerly provided guidance on other assets and deferred costs for development stage entities, but every paragraph in the subtopic (Sections 05, 15, 25, and 35) was superseded by Accounting Standards Update No. 2014-10. As a result, there is no longer any incremental GAAP for deferred costs that is specific to development stage entities; such entities apply the same recognition and measurement guidance as any other reporting entity.

ASC 720-10 is the Overall subtopic of the Other Expenses Topic, which is essentially an organizing shell. It lists the eight subtopics housed under Topic 720 — Overall, Start-Up Costs, Insurance Costs, Contributions Made, Real and Personal Property Taxes, Advertising Costs, Electronic Equipment Waste Obligations, and Business and Technology Reengineering — and states that each contains standalone guidance with no interrelationship among them.

ASC 720-15 governs the accounting for start-up activities — including one-time activities to open a new facility, introduce a new product or service, conduct business in a new territory or with a new class of customer, initiate a new process in an existing facility, or organize a new entity (organization costs). The single core rule is that costs of start-up activities, including organization costs, must be expensed as incurred (720-15-25-1). The Subtopic defines start-up activities by their nature rather than by the time period in which they occur, and carves out numerous costs governed by other GAAP.

This Subtopic tells investment advisers and mutual fund distributors how to account for costs incurred to distribute fund shares. The general rule: if the adviser does not receive both 12b-1 fees and contingent-deferred sales fees, the distribution/offering costs fail the definition of an asset and must be expensed as incurred (with initial offering costs treated as start-up costs under Subtopic 720-15). Distributors of no-front-end-load mutual funds instead defer and amortize incremental direct costs and expense indirect costs as incurred.