An Executive Guide to IFRS: Content, Costs and Benefits to Business

Non-financial assets

One of the better-known differences between US GAAP and IFRS concerns research and development. The US takes the view that all such expenditure should be expensed as incurred, whereas IAS 38 Intangible Assets requires that pure research expenditure be expensed but development costs must be capitalized. The development costs are those incurred after the entity has identified a viable product and determined that it can be manufactured, is likely to be profitable, and the company has the resources to develop it successfully.

The advantages of the one approach against the other are open to debate. On the one hand there is an inconsistency with all internally generated intangibles, that they are not typically capitalized while purchased intangibles will appear in the balance sheet. There is also the conceptual argument that the conditions surrounding development expenditure mean that such expenditure meets the definition of an asset – the company controls the output and expects to generate future cash flows. One could argue that the FASB position contravenes the Conceptual Framework. On the other hand, expensing these items at once is more efficient from a tax perspective.

One of the better-known differences between US GAAP and IFRS concerns research and development

IAS 38 has both a cost model and a revaluation model. Under the cost model, intangibles are amortized over their expected economic life. Where they have an indefinite life they are not amortized but ...