In 1974, the Financial Accounting Standards Board (FASB) considered requiring the expensing of all in- house Research and Development (R&D) expenditures. The Board received many comments predicting that if firms were required to expense R&D, they would significantly cut back on research expenditures to avoid hurting reported earnings. Subsequent to the adoption of pre-Codification FASB Statement No. 2, such an impact proved to be difficult to document. Consider the following questions as you respond:
- What are the advantages and disadvantages of expensing R&D, and what effect would such policy have on current and future expenditures?
- Why does the accounting profession make a distinction between internally created intangibles and purchased intangibles?
- How does the accounting profession account for these intangibles?