Accounting and Valuation Guide: Assets Acquired to Be Used in Research and Development Activities

This new guide provides guidance and illustrations regarding the initial and subsequent accounting for, valuation of, and disclosures related to acquired intangible assets used in research and development activities (IPR&D assets).

This is a valuable resource for preparers of financial statements, auditors, accountants and valuation specialists seeking an advanced understanding of the accounting, valuation, and disclosures related to acquired IPR&D assets.

Founded in 1887, the American Institute of Certified Public Accountants (AICPA) represents the CPA and accounting profession nationally and globally regarding rule-making and standard-setting, and serves as an advocate before legislative bodies, public interest groups and other professional organizations. The AICPA develops standards for audits of private companies and other services by CPAs; provides educational guidance materials to its members; develops and grades the Uniform CPA Examination; and monitors and enforces compliance with the accounting profession’s technical and ethical standards.

The AICPA’s founding established accountancy as a profession distinguished by rigorous educational requirements, high professional standards, a strict code of professional ethics, a licensing status and a commitment to serving the public interest.

History and Organization of This Guide .05-.11

1 Valuation Techniques Used to Measure Fair Value of In-Process Research and Development Assets .01-.34

Introduction .01-.05

Cost Approach .06-.09

Market Approach .10-.12

Income Approach .13-.34

2 Definition of and Accounting for Assets Acquired in a Business Combination That Are to Be Used in Research and Development Activities .01-.68

Introduction .01-.05

Key Concepts .06-.38

Recognition of Assets Acquired in a Business Combination .06-.15

Attributes of an Acquired IPR&D Project .16-.17

Unit of Account .18-.24

Core Technology .25-.27

Assets Held for Sale .28

Defensive IPR&D Assets .29-.33

Temporarily Idled or Abandoned Assets .34-.35

Completed Intangible Assets Used in R&D Activities .36-.37

Tangible Assets Used in R&D Activities .38

Explanatory Comments .39-.68

Scope of R&D Activities .39-.43

Specific IPR&D Projects—Life Cycle .44-.47

Specific IPR&D Projects—Substance .48-.53

Specific IPR&D Projects—Incompleteness .54-.63

Questions and Answers—Miscellaneous .64-.68

3 Accounting for Assets Acquired in an Asset Acquisition That Are to Be Used in Research and Development Activities .01-.31

Introduction .01-.09

Key Concepts .10-.12

Key Differences in the Accounting for Asset Acquisitions and Business Combinations .10

Relevant Accounting Guidance .11-.12

Explanatory Comments .13-.31

Alternative Future Use .13-.27

Questions and Answers—Miscellaneous .28-.31

4 Subsequent Accounting for Acquired Intangible Assets That Are to Be Used in Research and Development Activities .01-.86

Introduction .01

Business Combinations .02-.79

Accounting for Indefinite-Lived IPR&D Assets .10-.31

Accounting for Assets Resulting From R&D Activities .32-.79

Income Tax Considerations .80-.82

Valuation Allowance Assessments .80-.81

Identifying the Applicable Tax Rate to Calculate Deferred Tax Assets and Liabilities .82

Additional Considerations for Asset Acquisitions .83-.86

5 Disclosures of Assets Acquired That Are to Be Used in Research and Development Activities .01-.12

Business Combinations .01-.07

Additional Considerations for Asset Acquisitions .08-.12

Questions and Answers—Asset Acquisitions .11-.12

6 Valuation of In-Process Research and Development Assets .01-.200

Introduction .01-.02

Considerations Related to FASB ASC 820 .03-.25

Overview .03-.05

Identification of Market Participants .06-.14

Highest and Best Use for Nonfinancial Assets .15-.25

Use of Prospective Financial Information .26-.78

Overview .26-.27

Steps .28-.78

Application of the Multiperiod Excess Earnings Method to IPR&D Assets .79-.138

Overview .79-.81

Steps .82-.132

Additional Considerations for the Multiperiod Excess Earnings Method .133-.136

Illustrative Example: Multiperiod Excess Earnings Method .137-.138

Application of Relief From Royalty to IPR&D Assets .139-.153

Overview .139-.141

Steps .142-.151

Illustrative Example: Relief From Royalty Method .152

Additional Considerations for Relief From Royalty Method .153

Application of Decision Tree Analysis to IPR&D Assets .154-.170

Overview .154

Pharmaceutical IPR&D Valuation Example: Decision Tree Analysis .155-.168

6 Valuation of In-Process Research and Development Assets—continued Summary of Decision Tree Analysis .169-.170

Other Methods .171-.172

Valuation Report Considerations .173-.184

Identification and Description of IPR&D Assets .176

Valuation of IPR&D Assets .177-.183

Reconciliation of Value Estimates .184

Comprehensive Example .185-.200

Overview .185-.186

Trade Name .187-.188

Patents .189-.190

Customer Relationships .191-.192

Developed Technology .193-.194

IPR&D .195-.197

Additional Analysis .198-.199

Schedules .200

Glossary

Index of Pronouncements and Other Technical Guidance

Subject Index

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