Global Governments Recognize R&D as a Measurable GDP Asset
One year ago today, the Bureau of Economic Analysis (BEA) rewrote 86 years of history by recognizing research and development (R&D) expenditures as an investment in gross domestic product (GDP). Until July 31, 2013, R&D spending was classified as an intermediate expense used during production of a good or service and not a final expenditure. The change immediately increased the United States GDP by 2.7%.
As the economic community evolves into the 21st century acknowledging intangible assets, accounting practices are still very much rooted in the past. Current accounting practices categorize R&D as an intangible asset. It is categorized as a balance sheet expense but not an asset, hurting the bottom line. Only tangible assets like plant, property and equipment (PP&E) are recognized as an investment by generally accepted accounting principles (GAAP). The European Union (EU) recognized this in it’s January 2014 technical press briefing where it said of the inclusion of R&D, “In the conservative world of accounting, it is quite a bold change, coming way ahead of business accounting practices.”
The U.S. is not the first nation to recognize the intangible asset of R&D as an investment. In 2008, Canada and Australia recognized R&D spending as an investment and included it in their GDP. The EU will follow suit in September 2014. If – traditionally slow to react – governments are recognizing R&D as a measurable asset, why isn’t your company?
Even though accounting practices are lagging behind, the willingness for governments to make major economic reforms shows that now is the time for companies to capture and create value from their intangible assets. R&D, and other developed intellectual property and intangible assets, is an investment as much as any piece of equipment and should be accounted as an asset. Other intangible assets such as internally developed patents, customer lists, handbooks, contracts, etc. create market value for your company and need to be accounted as such.
Business Intangibles, LLC assists businesses and holding companies with their Intangible Asset and Intellectual Property concerns, creating financial value and building equity. Services include assessments, value creation, valuation, and strategic planning of going concerns and new ventures.