Summary of Statement No 2

Open-source frameworks and developer resources have decreased prices for more simple apps, but complex projects, particularly those with emerging technologies like AI, still demand substantial investment. If an entity cannot distinguish the research phase of an internal project to create an intangible asset from the development phase, the entity treats the expenditure for that project as if it were incurred in the research phase only. There is a presumption that the fair value (and therefore the cost) of an intangible asset acquired in a business combination can be measured reliably. This requirement applies whether an intangible asset is acquired externally or generated internally. IAS 38 includes additional recognition criteria for internally generated intangible assets (see below).

Thus, accounting for R&D costs, even within one country, can vary considerably. As will be examined in this section, there is great variation and problems with the accounting accounting for research and development treatment around the globe. In conclusion, the current requirement [SFAS No. 2] of ex-pensing R&D costs as incurred for financial statement purposes is inappropriate.

Is Product Development Agile?

Under IFRS rules, research spending is treated as an expense each year, just as with GAAP. By contrast, though, development costs can be capitalized if the company can prove that the asset in development will become commercially viable (meaning the technology or product in development is likely to make it through the approval process and generate revenue). Although the payment is non-refundable, Company A will receive a future benefit (the rights to the research) as the CRO performs the research services over the two-year period. Company A should continue to evaluate whether it expects the goods to be delivered or services to be rendered each reporting period to assess recoverability. Businessmen, constantly on the alert for immediate benefits, increased political pressure on Congress to allow the immediate deduction of R&D costs for tax purposes.

There is no definition or further guidance to help determine when a project crosses that threshold. Instead, companies need to evaluate technical feasibility in relation to each specific project. Projects related to new product developments are generally more difficult to substantiate than projects in which the entity has more experience.

4 Fixed-fee contract research arrangements

It appears that management of these companies disclose what they want with regard to the firm’s R&D activities. The FASB [1974] also states, “… a direct relationship be-tween R&D and specific future revenue generally has not been demonstrated.” However, as previously stated, many projects are successful and future revenue is directly related to them. Numerous studies [Minasian, May 1969] have been undertaken to show this relationship; they have had some success in linking R&D activity with future revenue amounts, even though the studies encountered data problems. Most of these studies use the number of patents or number of employees as statistical data, rather than the dollar value spent on R&D.