Accounting for R&D: an epistemology journey between IFRS and US GAAP (Falivena Camilla - Giuffrè)

Research and Development (R&D) activities are essential to achieve and maintain a competitive advantage. In some industries, R&D is a pivotal element of the value chain, directly impacting corporate survival. This handbook addresses the accounting treatment for R&D costs, with a focus on the approaches outlined by international accounting standards issued by the International Accounting Standards Board (IASB), and those established by the Financial Accounting Standards Board (FASB) in the United States. It begins with an overview of the evolving role of intangible assets in corporate financial statements and reviews key contributions from business economics literature, which has primarily concentrated on definitional aspects and the challenges related to financial reporting. These efforts aim to depict value creation processes while providing stakeholders with relevant and reliable information. The handbook then compares the two primary accounting frameworks in terms of financial reporting: IAS 38 under the international standards and ASC 730 under the US GAAP. While US GAAP takes a more conservative approach by expensing R&D costs as incurred, IAS/IFRS allow – under specific condition – for the capitalization of development expenditures. These differing approaches and their implications are examined through a review of international literature, which highlights an ongoing debate regarding the trade-off between reliability and value relevance, with contrasting views on which framework offers a more effective balance.
The final section presents a case-based analysis in the life sciences industry, exploring the operational and regulatory pathway to translate R&D activities into marketable medical devices. This analysis compares a European case, governed by IAS, with a US case, reporting under the US GAAP framework.