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first standard is FASB Statement No. 2. In this statement stated that the research and development (R&D) cost (internally generated intangible asset) should be charged to expense as it incurred. This is because there is an uncertainty of future benefits. The failure rate for the project is high even after the R&D stage. Besides that, there is also lack of causal relationship between research and development (R&D) expenditures and extended future benefits. So, it is better to recognition the R&D costs as an expenditure instead of capitalizing it. In addition, the R&D cost should be charged to expenditure because of inability to measure future benefit. This means that unless a resource’s future benefits can be identified and objectively measured, it cannot be recognized as an asset for accounting purpose. Moreover, according to FASB Statement No. 2, capitalized research and development cost is not useful in assessing the potential profit of an entity. Thus, R&D costs should be recognized as expenditure because it is lack of usefulness if capitalizing it.

 

The second standard is FASB Statement No. 86. This statement divided the recognition of computer software cost (internally generated intangible asset) into two phases. The first phase is under Statement 2, the cost incurred to build the technological feasibility of a product is included in research and development (R&D) and should be recognized as expenditure. While, the second phase stated that the costs should be capitalized after establishing the technological feasibility and before the product is obtainable for general release. However, FASB chairman Dennis Beresford argues that, “the subsequent cost is inherently immaterial, so software development costs should be charged to research and development cost”. This will result in more consistency in financial reporting because there are obstructions in determining when technological feasibility is found.

 

The third standard is International Accounting Standards (IAS) 38. This standard is similarly with Statement 86 where no intangible asset will be raised from research project instead it should be recognized as expenditure. A research project will only be recognized as an intangible asset if there have technical feasibility; intention and ability of adequate technical, financial and other resources to complete, use or sell it; generate probable future economic benefits and the ability to measure the expenditure attributed.

 

Furthermore, there is a significant gap between the expenditure and efforts that create the item and the identification of the item as a candidate for recognition. Some intangible assets are valuable items but it is hard to estimate. For example, the value of a particular brand name and newspaper mastheads are hard to estimate. Thus, several questions have arisen from it. For instance, the values will become apparent at what point? What expenditures gave risk to the value of the brand name, if the cost is measurement attribute? Therefore, three possible approaches had been address on it.

 

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