Description: Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) provides U.S. GAAP (generally accepted accounting principles) for businesses. ASC is organized by "topics" and Topic 730 is devoted to Research and Development (formerly covered in FASB Statement No. 2 "Accounting for Research and Development Costs"). Material formerly covered in FASB Statement No. 68 "Research and Development Arrangements" also appears under Topic 730. The FASB material below, copyrighted by the Financial Accounting Foundation, 401 Merritt 7, Norwalk, CT 06856, is used with permission.
Topic 730 Research and Development, 730-10-20 Glossary
Research is planned search or critical investigation aimed at discovery of new knowledge with the hope that such knowledge will be useful in developing a new product or service (hereinafter "product") or a new process or technique (hereinafter "process") or in bringing about a significant improvement to an existing product or process.
Development is the translation of research findings or other knowledge into a plan or design for a new product or process or for a significant improvement to an existing product or process whether intended for sale or use. It includes the conceptual formulation, design, and testing of product alternatives, construction of prototypes, and operation of pilot plants.
Topic 730 Research and Development, 730-10-55 Implementation Guidance and Illustrations
Examples of Activities Typically Included in Research and Development 55-1.
The following activities typically would be considered research and development within the scope of this Topic (unless conducted for others under a contractual arrangement [See NOTES below]):
Examples of Activities Typically Excluded from Research and Development 55-2.
The following activities typically would not be considered research and development within the scope of this Topic:
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Topic 730 covers R&D expense, or R&D costs funded by the reporting entity. Accounting for the costs of R&D activities conducted for others under a contractual arrangement is part of accounting for contracts in general (see for example Topic 606). See also paragraphs 25-8 to 25-10 under 730-20-25.
See Subtopic 912 under 730 for guidance to government contractors related to identifying R&D activities included in government contracts and the accounting for such activities.
For guidance on research and development arrangements see Subtopics 730-20 and 810-30. For guidance regarding design and development costs for products to be sold under long-term supply arrangements, see Subtopic 340-10. Topic 850 specifies disclosure requirements for related party transactions.
For guidance on materials, property, plant, and equipment acquired or constructed for R&D projects see paragraph 25-2 under 730-10-25 and Topic 360. For intangibles and contract services used for R&D see paragraph 25-2 under 730-10-25 and Topic 720.
For guidance on computer software as a cost of R&D (formerly covered in part in FASB Statement No. 86 "Accounting for the Costs of Computer Software to Be Sold, Leased, or Otherwise Marketed" paragraphs 28-36) see Topic 730 subtopic 10, especially paragraphs 25-3 and 25-4. Subtopic 350-40 covers general guidance on costs of computer software developed or obtained for internal use and Subtopic 985-20 covers computer software intended to be sold, leased or marketed. In particular, paragraph 985-20-25-1 offers guidance regarding costs incurred to establish the technological feasibility of a computer software product. For guidance related to a funded software-development arrangement, see paragraphs 985-605-25-86 through 25-87.
The accounting for recognized intangible assets acquired by an entity, other than intangibles acquired in a business combination, is specified in Topic 350 (formerly covered in FASB Statement No. 142 "Goodwill and Other Intangible Assets"). Research and development assets acquired in a business combination or an acquisition by a not-for-profit entity is covered in Subtopic 805-20.
The material from FASB in this section was compiled in the summer of 2016 and is not meant to be an exhaustive summary of U.S. business R&D accounting guidance.
Source: FASB, ASC. Full FASB statements and other pronouncements are available at https://asc.fasb.org and http://www.iasplus.com/en-us/standards/fasb/expenses/asc730.
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Description: Section 1.174-2 of the U.S. Code of Federal Regulations (Title 26, Internal Revenue) specifies the definition of R&D for tax filing purposes.
1.174-2 Definition of research and development expenditures.
Source: 26 CFR 1.174-2. Available at https://www.law.cornell.edu/cfr/text/26/1.174-2.
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NCSES Business Research and Development and Innovation Survey
Description: The Business R&D and Innovation Survey (BRDIS), successor to the Survey of Industrial Research and Development, is the primary source of information on R&D performed or funded by businesses within the United States and covers for-profit, nonfarm businesses with five or more employees. The survey is conducted by the U.S. Census Bureau for the National Center for Science and Engineering Statistics, National Science Foundation. For more information and statistics see https://www.nsf.gov/statistics/srvyindustry/.
Research and development (R&D) comprise creative and systematic work undertaken in order to increase the stock of knowledge and to devise new applications of available knowledge. This includes a) activities aimed at acquiring new knowledge or understanding without specific immediate commercial applications or uses (basic research); b) activities aimed at solving a specific problem or meeting a specific commercial objective (applied research); and c) systematic work, drawing on research and practical experience and resulting in additional knowledge, which is directed to producing new products or processes or to improving existing products or processes (development). R&D includes both direct costs such as salaries of researchers as well as administrative and overhead costs clearly associated with the company’s R&D.
The term R&D does NOT include expenditures for:
The following are examples of activities that typically would be excluded from research and development (in accordance with FASB Statement No. 2 "Activities Constituting Research and Development" http://www.fasb.org/pdf/fas2.pdf):
Does R&D include development of software and Internet applications?
Research and development activity in software and Internet applications refers only to activities with an element of uncertainty and that are intended to close knowledge gaps and meet scientific and technological needs…. regardless of the eventual user (internal or external).
R&D activity in software INCLUDES:
R&D activity in software EXCLUDES:
Source: NCSES, 2016 BRDI-1 survey form and 2016 BRDIS Q-by-Q Instructions. Available at https://www.nsf.gov/statistics/srvyindustry/.
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