IFRS and U.S. GAAP

Virtually without exception, U.S. GAAP requires that all research and development expenditures must be expensed as incurred. This requirement has existed for over thirty years. Does IFRS handle research and development costs in the same manner?

This is one of the best examples of differences between IFRS and U.S. GAAP. IFRS requires the capitalization of development costs. Guidelines do exist to help determine when a project moves from the research stage into the development stage. However, once the development stage commences, the costs have to be capitalized and amortized over the anticipated useful life. When companies first adopt IFRS, this will be a change that will require some effort, particularly if development costs are significant, and will have a substantial impact on reported net income.

Don't use plagiarized sources. Get Your Custom Essay on
IFRS and U.S. GAAP
Just from $13/Page
Order Essay

The difference between U.S. GAAP and IFRS is not a question of right or wrong but rather an example of different theories colliding. U.S. GAAP prefers not to address the uncertainty inherent in research and development programs but rather to focus on comparability of amounts spent (between years and between companies). IFRS, on the other hand, views the failure by U.S. GAAP to recognize assets when future benefits are clearly present as a reporting flaw that should not be allowed.