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While the new standards aim to improve financial reporting, they also introduce complexities around determining useful lives and impairment of capitalized R&D. Companies will need robust processes to estimate amortization periods and track asset performance. Expensing R&D costs provides a prudent and conservative accounting treatment under IFRS standards.
3.4.3 R&D funding arrangements – liability vs. contractual services
Generally, pharmaceuticals, software, technology, and semiconductor companies incur the highest R&D spending. Industries with companies with a large number of intangible assets generally report high spending in research and development efforts. R&D includes activities aimed at developing or improving products, processes, or technologies. To evaluate R&D effectiveness, companies often benchmark their spending against industry averages or competitors. Metrics such as return on investment (ROI) in R&D help gauge whether the expenditure leads to revenue growth or improved profitability. Businesses conduct R&D for many reasons, the first and foremost being new product research and development.
