Accounting for R&D Intangible Assets: Getting Ready for IFRS and Responding to Transfer Pricing Requirements
Tokyo, Japan
13 July 2010
Hosted By: NERA Economic Consulting
According to current accounting standards in Japan and the United States, all R&D expenditures are charged to expense when incurred. IAS 38 states that development expenses are to be capitalized and recognized as an intangible asset if specific criteria are met. This NERA seminar, held in Tokyo on 13 July 2010, examined the valuation of intangible assets internally generated through R&D activities, from the perspectives of financial accounting and transfer pricing experts. NERA Vice President Makoto Ikeya and Consultant Satoru Kishitani presented.
Their presentations discussed how, in measuring an intangible asset, entities need to define the time when expenditures are incurred and recognized, the length of useful life, and the amortization method. The treatment of intangible assets is also important in tax law with regard to income calculation. The main issue in a transfer pricing audit is whether a domestic entity is able to collect a royalty from its related parties overseas for the use of its intangible assets. Both international accounting standards and transfer pricing taxation standards require valuation of intangible assets based on R&D activities and their related economics. Therefore, companies will need to investigate, analyze, and document their R&D activities in a consistent manner globally for both financial reporting and transfer pricing documentation.
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