Accounting issues research and analysis Paper Example | Topics and Well Written Essays - 500 words

Accounting issues and analysis - Research Paper Example Section 14 indicates that during transition, an entity should disclose the immediate status in financial reporting in accordance with estimates made in accordance with the previous standard (national standard). R&D costs for prior years should thus be recognized under the US GAAP, and clearly indicated that they are reported under US GAAP in the first IFRS opening balances (IFRS 1, P28). Prior R&D costs should thus be expensed in accordance with SFAS 2, which limits capitalization of R&D costs. In regard to tracking future R&D costs, there is need for our entity to adopt IFRS. Just like in US GAAP, IFRS expenses all costs incurred in the research phase of a project. Nevertheless, it will be good for our entity to clearly separate research phase costs and development phase costs. In cases where a distinction does not exist, IFRS requires expensing of such costs, eroding the entity’s R&D assets. Tracking R&D costs under IFRS ensures that cost of materials incurred in development, employee costs during development, fees and patent amortizations are recognized as an asset, enhancing the balance sheet worth of the entity. This is outlined in section (IAS 38, p66). To account for the current project’s research and development costs, all development costs are capitalized and recognized as an asset in the balance sheet as per IAS 38R.57. On the other hand, all research phase costs are expensed. For the development costs to be capitalized there must be proof that there is intention to complete such products and sell or use them and the entity has the right and ability to use or sell such products. These costs should equally be in a position to generate future economic benefits to the organization. The entity should equally be in a position to measure costs incurred in development in a reliable manner. This will be different from US GAAP, which limits capitalization of development costs (FASB, P1). If recognition