Slide 1Topic is about Research and Development expenditure under US GAAP and IFRS. I’m going to be focusing on internally generated costs
Why companies investing in R&D
Slide 2: It’s hard for companies to stay competitive to their competitor in their industry if they can’t hold the latest and most innovative technology. So investing in R&D helps companies stay competitive
Business performances: statically, in a survey in Canada in 2007, 44% of ideas of innovation come from the source of R&D. Thus, R&D help improve business performance.
Slide 3How companies in US and the world are investing in R&D? In US, for the year 2014 to come, US companies are expected to spend $ 465 billion into R&D activities; it means 2.7% percent of US GDP.
On the Europe side, company like Volkswagen spends $13.5 billion, Novartis spends $9.9 billions. That’s huge amount of money, thus it requires an appropriate accounting treatment for these costs.

Slide 4: Both US GAAP and IFRS recognize the importance of appropriate accounting treatment for R&D activities but take a different viewpoint on the method should be used. It’s clear that if future economic benefit gonna flow into the entity as the result of R&D activities. These cost should be classified as asset rather than expense. But whether future economic benefit are certain to flow into entity are impossible to predict. Thus the difference between GAAP and IFRS arise

Slide 5: Talk about how US GAAP account for R&D cost. The accounting standard here is ASC 730- Research and development. ASC 730 defines what is research and development. Types of R&D activities falls under scope of standard.
The general rules here are, except for some costs related to computer software, all the R&D costs are charged to expenses as it incurred. It means that all those costs must be categorized as expenses and written off to income in the Income statement. GAAP reason that at the time of R&D costs incurred, future economic benefits are uncertain, there’s not indication of economic resource has been created. Example 1: Company A is developing a new drug for cancer that has successfully completed first phase of testing. The drug is now still being developed and on later phases of testing. Company is still concerning about the approval of the drug from FDA has not stated any marketing yet. According to ASC 730-10-25-1 all costs of developing the drug shall be charged to expense as incurred, company can’t capitalize the R&D costs
Example2: Company A developed a mobile device and now on the way of developing to update and add new functionality to the device. According to ASC 730-10-25-1 all the costs of development of the new functionality are expensed as incurred. Company can’t capitalize these costs
Accounting for R&D in Pfizer: Pfizer is an American multinational pharmaceutical corporation headquartered in New York, one of the world largest pharmaceutical companies by revenues.
For the year 2013, R&D expense is about 6.6 billion dollar
GAAP page 62
Research and development expenses-operation 31
How account for R&D- page 65
Amortization of already capitalized page 91

IFRS
Accounting standard: IFRS doesn’t provide a specific guidance for R&D activities. However, the accounting treatment for R&D needs to be interpreted from IAS 38 Intangible Asset.
IAS 38 divides R&D activities into 2 phases: research phase and development phase. In the research phase it’s impossible to demonstrate