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11.4 Accounting for Research and Development

Learning objectives.

At the end of this section, students should be able to meet the following objectives:

• Define the terms “research” and “development.”
• Indicate the problem that uncertainty creates in reporting research and development costs.
• Understand the method by which research and development costs are handled in financial accounting as has been established by U.S. GAAP.
• Explain the advantages of handling research and development costs in the required manner.
• Recognize that many companies will report asset balances that are vastly understated as a result of the official handling of research and development costs.

Question: Many companies create internally developed intangibles such as copyrights and trademarks. As has been mentioned previously, the historical cost for such assets is often relatively small, almost inconsequential. However, monetary amounts spent to arrive at ideas that can be turned into new types of marketable products are often enormous. Such expenditures are essential to the future success of many companies. In 2008 alone, Intel reported spending $5.7 billion on research and development in hopes of discovering new products to patent and sell. During the same one-year period, Bristol-Myers Squibb incurred costs of $3.6 billion on research and development. Those are clearly not inconsequential amounts. What is meant by the term “research”? What is meant by the term “development”? If a company such as Intel or Bristol-Myers Squibb spends billions on research and development each year, what accounting is appropriate? Should the company recognize an asset or an expense or some combination? The outcome is uncertain, but the money was spent under the assumption that future economic benefits would be derived .

For example, assume that a technological company or a pharmaceutical company spends $1 million in Year One to do research on Future Product A. The company then spends another $1 million during the period on development costs for Future Product A. At the end of the year, officials believe that a patent is 80 percent likely for Future Product A. If received, sales can be made. During that time, the company also spends another $1 million in research and $1 million in development in connection with Future Product B. However, at year’s end, the same officials are less optimistic about these results. They believe that only a 30 percent chance exists that this second product will ever receive a patent so that it can be used to generate revenues. According to U.S. GAAP, what reporting is appropriate for the cost of these two projects?

Answer: Research is an attempt made to find new knowledge with the hope that the results will eventually be useful in creating new products or services or significant improvements in existing products or services. Development is the natural next step. It is the translation of that new knowledge into actual products or services or into significant improvements in existing products or services. In simple terms, research is the search for new ideas; development is the process of turning those ideas into saleable products.

Reporting research and development costs poses incredibly difficult challenges for accountants. As can be seen with Intel and Bristol-Myers Squibb, such costs are often massive because of the importance of new ideas and products to the future of many organizations. Unfortunately, significant uncertainty is inherent in virtually all such projects. The probability of success can be difficult to determine for years and is open to manipulation for most of that time. Often the only piece of information that is known with certainty is the amount that has been spent.

Thus, except for some relatively minor exceptions, all research and development costs are expensed as incurred according to U.S. GAAP (FASB, 1974). The probability for success is not viewed as relevant to this reporting. Standardization is very apparent. All companies provide the same information in the same manner. The total cost incurred each period for research and development appears on the income statement as an expense regardless of the chance for success.

Consequently, the accounting for Future Product A and Future Product B is identical. Although one is 80 percent likely to be successful while the other is only 30 percent likely, the research and development expenditures for both are expensed as incurred. No asset is reported despite the possibility of future benefits. The rigidity of this rule comes from the inherent uncertainty as to whether revenues will ever be generated and, if so, for how long. Rather than trying to anticipate success, the conservatism found in accounting simply expenses all such costs. The percentages associated with the likelihood of receiving a patent and generating future revenues are ignored.

Two major advantages are provided by this approach. First, the amount spent on research and development each period is easy to determine and then compare with previous years and with other similar companies. Decision makers are quite interested in the amount invested in the search for new ideas and products. Second, the possibility for manipulation is virtually eliminated. No distinction is drawn between a likely success and a probable failure. No reporting advantage is achieved by maneuvering the estimation of a profitable outcome.

Link to multiple-choice question for practice purposes: http://www.quia.com/quiz/2092945.html

Question: Companies spend billions of dollars on research and development each year in hopes of creating new products that can be sold in the future. This money would never be spent unless officials believed that a reasonable chance existed to recoup such huge investments. However, whether success is 100 percent likely or only 2 percent, no asset are reported on the balance sheet for these costs . Because all amounts spent on research and development are expensed automatically, are the assets reported by companies in industries such as technology and pharmaceuticals not omitting many of their most valuable future benefits? If a company spends $5 billion to develop a new drug or electronic device that becomes worth $8 billion, does reporting absolutely no asset make sense?

Answer: Even a student in an introductory accounting course can quickly recognize the problems created by a rule requiring that all research and development costs be expensed as incurred. Technology, pharmaceutical, and many other companies must exclude items of significant value from their balance sheets by following U.S. GAAP. While this approach is conservative, consistent, and allows for comparability, the rationale is confusing. The balance sheet hardly paints a fair portrait of the underlying organization. Expensing research and development costs also violates the matching principle. These expenditures are made in the hopes of generating future revenues but the expense is recorded immediately.

Capitalizing these costs so that they are reported as assets is logical but measuring the value of future benefits is extremely challenging. Without authoritative guidance, the extreme uncertainty of such projects would leave the accountant in a precarious position. U.S. GAAP “solves” the problem by eliminating the need for any judgment by the accountant. All costs are expensed. No rule could be simpler to apply.

Consequently, any decision maker evaluating a company that invests heavily in research and development needs to recognize that the assets appearing on the balance sheet are incomplete. Such companies spend money to create future benefits that are not being reported. The wisdom of that approach has long been debated but it is the rule under U.S. GAAP. Difficult estimates are not needed and the possibility of manipulation is avoided.

Talking with an Independent Auditor about International Financial Reporting Standards (Continued)

Following is a continuation of our interview with Robert A. Vallejo, partner with the accounting firm PricewaterhouseCoopers.

Question : Virtually without exception, U.S. GAAP requires that all research and development expenditures must be expensed as incurred. This requirement has existed for over thirty years. Does IFRS handle research and development costs in the same manner?

Robert Vallejo : This is one of the best examples of differences between IFRS and U.S. GAAP. IFRS requires the capitalization of development costs. Guidelines do exist to help determine when a project moves from the research stage into the development stage. However, once the development stage commences, the costs have to be capitalized and amortized over the anticipated useful life. When companies first adopt IFRS, this will be a change that will require some effort, particularly if development costs are significant, and will have a substantial impact on reported net income.

The difference between U.S. GAAP and IFRS is not a question of right or wrong but rather an example of different theories colliding. U.S. GAAP prefers not to address the uncertainty inherent in research and development programs but rather to focus on comparability of amounts spent (between years and between companies). IFRS, on the other hand, views the failure by U.S. GAAP to recognize assets when future benefits are clearly present as a reporting flaw that should not be allowed.

Key Takeaway

Research and development costs include all amounts spent to create new ideas and then turn them into products that can be sold to generate revenue. Because success is highly uncertain, accounting has long faced the challenge of determining whether such costs should be capitalized or expensed. U.S. GAAP requires that all research and development costs (with a few minor exceptions) be expensed as incurred. This official standard prevents manipulation and allows decision makers to see the amount spent by management for this essential function. However, this method of accounting means that companies (especially in certain industries) often fail to show some of their most valuable assets on their balance sheets.

FASB, “Accounting for Research and Development Costs,” Statement of Financial Accounting Standards No . 2 , October 1974. Within the new Accounting Standards Codification , information on the reporting of research and development can be found at FASB ASC 730-10.

Financial Accounting Copyright © 2015 by University of Minnesota is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International License , except where otherwise noted.

What Is Financial Accounting?

Financial accounting is a specific process of recording, processing and reporting a company’s business transactions. These transactions are recorded in financial statements that detail the organization’s financial health.

Given the importance of financial accounting, the Financial Accounting Standards Board (FASB) sets regulations for financial accounting, referred to as GAAP (the generally accepted accounting principles). Private companies are not required to provide this information; only public companies must. Public companies include any organization that issues shares available to the general public.

What Are the Principles of Financial Accounting?

• Principle of Conservatism
• Principle of Accrual
• Principle of Cost
• Principle of Consistency
• Principal of Economic Entity  
• Matching Principle
• Principle of Going Concern
• Principle of Full Disclosure

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Financial Accounting Statements

There are five basic statements that are always included in financial accounting documents.

• The balance sheet
• The income statement
• The statement of cash flow
• The statement of shareholders’ equity
• The statement of retained earnings

1. Balance Sheet

The balance sheet provides details describing what the company owns (“assets”) and owes (“liabilities”) as well as shareholder equity.

Businesses can own various types of assets, each of which is recorded on the balance sheet. Assets are any form of capital that the business either possesses or is owed by another entity. Examples include:

• Accounts receivable
• Buildings (separate from real estate investments)
• Intellectual property and other intangible assets
• Investments, which can include real estate assets owned specifically for the purpose of financial investment
• Machinery and equipment
• Notes receivable, or money owed to the company that it expects to receive within one year
• Prepaid expenses

Liabilities

Liabilities are any form of financial obligation that a business has to another entity. Examples include:

• Accounts payable
• Current taxes
• Deferred tax
• Loans payable
• Notes payable, or money the company owes to another entity and must pay within one year
• Unearned revenue, otherwise known as a product or service for which a client has already paid but has not yet received
• Warranty obligations

Shareholder Equity

Shareholder equity refers to all forms of capital owned by the business shareholders. Shareholder equity can include:

• Common and preferred stocks
• Money on hand to invest in the business (retained earnings)
• Profit or loss in company investments over the recorded time period (comprehensive income)

Since the balance sheet details the financial status of the company, every dollar is accounted for in either assets, liabilities or shareholder equity. As a result the total value of a company’s assets is equal to their liabilities plus shareholder equity.

2. Income Statement

The income statement details the net income for the business over the specified time period. This includes all forms of revenue (from the sale of goods or services, rental income from real estate assets, licensing revenue from intellectual property and more) and all expenses (loan payments, payroll, property expenses and more). Comparing revenue to expenses in the income statements provides a clear picture of the income produced by the company.

The income statement is also sometimes referred to as a profit and loss statement.

3. Statement of Cash Flow

A statement of cash flow details a company’s income and debt over a period of time (usually a year). This statement is exclusively concerned with cash and does not include amortization or depreciation (both of which are important entries on the Income Statement). By focusing solely on cash into and out of the business, the statement of cash flow demonstrates the company’s ability to pay existing debts and demonstrates the organization’s short-term viability.

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4.Statement of Shareholders’ Equity

The statement of shareholder’s equity details the change in shareholder equity, or ownership value, over the specified time period. As with the other statements, the time period for the statement of shareholders’ equity is typically one year.

Shareholder equity is identified by calculating the difference between the company’s total assets and total liabilities. Larger values indicate that the company has more assets relative to liabilities, and that the company is worth more money. Thoroughly reviewing the statement of shareholders’ equity can provide insight into areas of the company that are increasing or decreasing equity each year.

The statement of shareholders’ equity typically includes the following components:

• Common Stock : This is the most publicly available form of stock in many companies. It is typically lower on the list of priorities than other forms of stock, which means owners of common stock are less likely than other stock owners to receive dividends or a share of liquidation revenues if a company goes out of business.
• Preferred Stock : Preferred stock is a special kind of stock that entitles owners to earnings and dividends before common stock owners. This stock is typically listed on the statement at face value.
• Treasury Stock : This is stock that has been repurchased by the company. An organization might repurchase its stock if it’s attempting to avoid a hostile takeover by a different organization. Shareholder equity is reduced by the amount of capital spent to acquire treasury stock.
• Additional Paid-Up Capital : This represents the excess capital investors pay over face value to obtain company stock.
• Retained Earnings : This is the amount of money that the company has brought in that hasn’t been distributed to investors as dividends or paid out to cover expenses. 
• Unrealized Gains and Losses : This entry represents the change in price for investments that have not yet been sold. Increases in stock values prior to stock sale are unrealized gains, while decreases in stock values prior to sale are unrealized losses. When selling the stock the gains or losses become realized.

5. Statement of Retained Earnings

The statement of retained earnings shows the amount of earnings the company has accumulated and kept within the company since inception. This is all cash held on hand after paying expenses and shareholder dividends. Each year the retained earnings shown on the statement changes based on the company’s retained cash from the previous year.

Investors considering a company value the statement of retained earnings because it provides insights into the mindset and motivations of the business’s management team. Higher retained earnings values indicate the company has plenty of cash on hand to finance new initiatives and growth, which is attractive to investors. Low retained earnings could either indicate that the business doesn’t turn a profit, or that the management team distributes the cash to shareholders in the form of high dividends, both of which can be concerning to potential investors.

Why Is Financial Accounting Important?

Financial accounting is critical because it provides critical information to people who are making important decisions. They’re used by the business to drive directional decisions or by outside parties considering investing in the business. Since such important decisions are based on this information, financial accounting documents are strictly regulated and required by law in the United States.

These documents are often referenced by individuals both inside and outside of the organization, including: 

• The management team uses financial accounting documents to identify and troubleshoot financial issues within the company and to create plans for the future direction of the organization.
• Investors use these documents to understand the financial health and growth potential of the company prior to deciding whether or not they want to invest their money.
• Government auditors use these documents to understand the inner workings of a company when performing an audit on the organization.
• Lawyers analyze financial accounting documents while reviewing a company’s business practices as part of a lawsuit or other legal action.
• Suppliers will sometimes require review of the businesses finances before agreeing to provide goods or services to the company to ensure the company can pay for the goods or services.
• Banks typically require information about a company’s financial health prior to lending money to the organization.

More From Peter Grant What Is GAAP?

Principles of Financial Accounting

There are eight general principles of financial accounting. These principles should be followed to ensure that the documents are accurate, reasonable and provide useful information to the readers. The eight principles are:

• Principle of Conservatism : Expenditures and liabilities are to be reported as soon as possible. Profits and assets are registered only after an accountant is confident they will be received. This yields a conservative estimate of the health of the business and prevents providing overly optimistic estimates to readers.
• Principle of Accrual : All amounts should be entered in the amounts they occur instead of when the associated cash flow occurs. This creates a detailed record of finances that allows outsiders to observe what occurred over time. 
• Principle of Cost : All equity, contributions, profits and liabilities are to be recorded at their initial purchasing prices. Quantities reported cannot be increased for market value increases or inflation. 
• Principle of Consistency : Accounting practices should be consistent across different aspects of the business. This allows an organization to use the same accounting practices and standards for internal and external documents. 
• Principal of Economic Entity : A company’s operator has separate legal liabilities and must be treated as separate from the business itself. Transactions between the business and operator must be tracked with clear definition of purchaser and seller. 
• Matching Principle : This states that costs and receipts must be correctly identified in financial statements. Following this principle ensures that costs are accurately tracked at the time they were sustained.
• Principle of Going Concern : The principle of going concern indicates the company can sustain for a specified period of time, usually one year. 
• Principle of Full Disclosure : This principle demands that a company publish accurate information in its financial reports and ensures that those making decisions have access to accurate information.   

Financial Accounting vs. Managerial Accounting

Financial accounting and managerial accounting are two similar but distinct forms of tracking business expenses.

Financial accounting focuses on the reporting processes used to convey information to important stakeholders, including many outside reviewers. Accountants responsible for financial accounting focus on long-term financial strategies related to organizational growth. Additionally, since these documents are legally required they must be prepared in ways that comply with industry standards.

Managerial accounting is a more internal process that uses an understanding of the business to drive management decisions. Accountants responsible for managerial accounting are usually focused on short-term growth strategies relating to economic maintenance. For instance, an accountant may consider the cost/benefit of purchasing a part to help make a product. Since managerial accounting is an internal process, each organization can use their own procedures and templates when creating their documents. 

This content is for informational and educational purposes only. Built In strives to maintain accuracy in all its editorial coverage, but it is not intended to be a substitute for financial or legal advice.

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Financial Reporting

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• Mark Christensen 2  

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External accounting; (Loose) annual reporting

Financial reporting is the process by which goal-seeking organizations provide an external audience with accounting reports on the organization’s financial performance, financial position, and its sources and uses of cash with respect to a defined financial period or at the end of a financial period.

Introduction

Financial reporting is one of the core functions of accounting in all goal-seeking organizations, including public sector organizations. Accounting is a fundamental contributor to management and operation of organizations together with other functional tasks such as marketing, human resources management, legal services, information technology, and so on. The function of accounting can in turn be classified into two main categories: management accounting and external accounting which in turn consists of preparation of financial statements and reporting of same. In this entry, the following issues are considered...

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Christensen, M. (2018). Financial Reporting. In: Farazmand, A. (eds) Global Encyclopedia of Public Administration, Public Policy, and Governance. Springer, Cham. https://doi.org/10.1007/978-3-319-20928-9_2284

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What Is Financial Analysis?

Understanding financial analysis, corporate financial analysis, investment financial analysis, types of financial analysis, horizontal vs. vertical analysis.

• Example of Financial Analysis
• Financial Analysis FAQs

The Bottom Line

• Corporate Finance
• Financial statements: Balance, income, cash flow, and equity

Financial Analysis: Definition, Importance, Types, and Examples

Financial analysis is the process of evaluating businesses, projects, budgets, and other finance-related transactions to determine their performance and suitability. Typically, financial analysis is used to analyze whether an entity is stable, solvent , liquid , or profitable enough to warrant a monetary investment.

Key Takeaways

• If conducted internally, financial analysis can help fund managers make future business decisions or review historical trends for past successes.
• If conducted externally, financial analysis can help investors choose the best possible investment opportunities.
• Fundamental analysis and technical analysis are the two main types of financial analysis.
• Fundamental analysis uses ratios and financial statement data to determine the intrinsic value of a security.
• Technical analysis assumes a security's value is already determined by its price, and it focuses instead on trends in value over time.

Investopedia / Nez Riaz

Financial analysis is used to evaluate economic trends, set financial policy, build long-term plans for business activity, and identify projects or companies for investment. This is done through the synthesis of financial numbers and data. A financial analyst will thoroughly examine a company's financial statements —the income statement , balance sheet , and cash flow statement . Financial analysis can be conducted in both corporate finance and investment finance settings.

One of the most common ways to analyze financial data is to calculate ratios from the data in the financial statements to compare against those of other companies or against the company's own historical performance.

For example, return on assets (ROA) is a common ratio used to determine how efficient a company is at using its assets and as a measure of profitability. This ratio could be calculated for several companies in the same industry and compared to one another as part of a larger analysis.

There is no single best financial analytic ratio or calculation. Most often, analysts use a combination of data to arrive at their conclusion.

In corporate finance, the analysis is conducted internally by the accounting department and shared with management in order to improve business decision making. This type of internal analysis may include ratios such as net present value (NPV) and internal rate of return (IRR) to find projects worth executing.

Many companies extend credit to their customers. As a result, the cash receipt from sales may be delayed for a period of time. For companies with large receivable balances, it is useful to track days sales outstanding (DSO), which helps the company identify the length of time it takes to turn a credit sale into cash. The average collection period is an important aspect of a company's overall cash conversion cycle .

A key area of corporate financial analysis involves extrapolating a company's past performance, such as net earnings or profit margin , into an estimate of the company's future performance. This type of historical trend analysis is beneficial to identify seasonal trends.

For example, retailers may see a drastic upswing in sales in the few months leading up to Christmas. This allows the business to forecast budgets and make decisions, such as necessary minimum inventory levels, based on past trends.

In investment finance, an analyst external to the company conducts an analysis for investment purposes. Analysts can either conduct a top-down or bottom-up investment approach. A top-down approach first looks for macroeconomic opportunities, such as high-performing sectors, and then drills down to find the best companies within that sector. From this point, they further analyze the stocks of specific companies to choose potentially successful ones as investments by looking last at a particular company's  fundamentals .

A bottom-up approach, on the other hand, looks at a specific company and conducts a similar ratio analysis to the ones used in corporate financial analysis, looking at past performance and expected future performance as investment indicators. Bottom-up investing forces investors to consider  microeconomic  factors first and foremost. These factors include a company's overall financial health, analysis of financial statements, the products and services offered, supply and demand, and other individual indicators of corporate performance over time.

Financial analysis is only useful as a comparative tool. Calculating a single instance of data is usually worthless; comparing that data against prior periods, other general ledger accounts, or competitor financial information yields useful information.

There are two types of financial analysis: fundamental analysis and technical analysis .

Fundamental Analysis

Fundamental analysis uses ratios gathered from data within the financial statements, such as a company's earnings per share (EPS), in order to determine the business's value. Using ratio analysis in addition to a thorough review of economic and financial situations surrounding the company, the analyst is able to arrive at an intrinsic value for the security. The end goal is to arrive at a number that an investor can compare with a security's current price in order to see whether the security is undervalued or overvalued.

Technical Analysis

Technical analysis uses statistical trends gathered from trading activity, such as moving averages (MA). Essentially, technical analysis assumes that a security’s price already reflects all publicly available information and instead focuses on the  statistical analysis of price movements . Technical analysis attempts to understand the market sentiment behind price trends by looking for patterns and trends rather than analyzing a security’s fundamental attributes.

When reviewing a company's financial statements, two common types of financial analysis are horizontal analysis and vertical analysis . Both use the same set of data, though each analytical approach is different.

Horizontal analysis entails selecting several years of comparable financial data. One year is selected as the baseline, often the oldest. Then, each account for each subsequent year is compared to this baseline, creating a percentage that easily identifies which accounts are growing (hopefully revenue) and which accounts are shrinking (hopefully expenses).

Vertical analysis entails choosing a specific line item benchmark, then seeing how every other component on a financial statement compares to that benchmark. Most often, net sales is used as the benchmark. A company would then compare cost of goods sold, gross profit, operating profit, or net income as a percentage to this benchmark. Companies can then track how the percent changes over time.

Examples of Financial Analysis

In the nine-month period ending Sept. 30, 2022, Amazon.com reported a net loss of $3 billion. This was a substantial decline from one year ago where the company reported net income of over $19 billion.

Financial analysis shows some interesting facets of the company's earnings per share (shown above. On one hand, the company's EPS through the first three quarters was -$0.29; compared to the prior year, Amazon earned $1.88 per share. This dramatic difference was not present looking only at the third quarter of 2022 compared to 2021. Though EPS did decline from one year to the next, the company's EPS for each third quarter was comparable ($0.31 per share vs. $0.28 per share).

Analysts can also use the information above to perform corporate financial analysis. For example, consider Amazon's operating profit margins below.

• 2022: $9,511 / $364,779 = 2.6%
• 2021: $21,419 / $332,410 = 6.4%

From Q3 2021 to Q3 2022, the company experienced a decline in operating margin, allowing for financial analysis to reveal that the company simply earns less operating income for every dollar of sales.

Why Is Financial Analysis Useful?

The financial analysis aims to analyze whether an entity is stable , liquid, solvent, or profitable enough to warrant a monetary investment. It is used to evaluate economic trends, set financial policies, build long-term plans for business activity, and identify projects or companies for investment.

How Is Financial Analysis Done?

Financial analysis can be conducted in both corporate finance and investment finance settings. A financial analyst will thoroughly examine a company's financial statements—the income statement, balance sheet, and cash flow statement.

One of the most common ways to analyze financial data is to calculate ratios from the data in the financial statements to compare against those of other companies or against the company's own historical performance. A key area of corporate financial analysis involves extrapolating a company's past performance, such as net earnings or profit margin, into an estimate of the company's future performance.

What Techniques Are Used in Conducting Financial Analysis?

Analysts can use vertical analysis to compare each component of a financial statement as a percentage of a baseline (such as each component as a percentage of total sales). Alternatively, analysts can perform horizontal analysis by comparing one baseline year's financial results to other years.

Many financial analysis techniques involve analyzing growth rates including regression analysis, year-over-year growth, top-down analysis such as market share percentage, or bottom-up analysis such as revenue driver analysis .

Last, financial analysis often entails the use of financial metrics and ratios. These techniques include quotients relating to the liquidity, solvency, profitability, or efficiency (turnover of resources) of a company.

What Is Fundamental Analysis?

Fundamental analysis uses ratios gathered from data within the financial statements, such as a company's earnings per share (EPS), in order to determine the business's value. Using ratio analysis in addition to a thorough review of economic and financial situations surrounding the company, the analyst is able to arrive at an intrinsic value for the security. The end goal is to arrive at a number that an investor can compare with a security's current price in order to see whether the security is undervalued or overvalued.

What Is Technical Analysis?

Technical analysis uses statistical trends gathered from market activity, such as moving averages (MA). Essentially, technical analysis assumes that a security’s price already reflects all publicly available information and instead focuses on the statistical analysis of price movements. Technical analysis attempts to understand the market sentiment behind price trends by looking for patterns and trends rather than analyzing a security’s fundamental attributes.

Financial analysis is a cornerstone of making smarter, more strategic decisions based on the underlying financial data of a company. Whether corporate, investment, or technical analysis, analysts use data to explore trends, understand growth, seek areas of risk, and support decision-making. Financial analysis may include investigating financial statement changes, calculating financial ratios, or exploring operating variances.

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Applied Accounting Research

Master the research process used in the accounting profession..

Credits: 3

Format: Online

Duration: 8 weeks

The auditing and accounting profession evolves daily to meet the needs of a complex business environment in both the U.S. and internationally. Research skills in accounting, auditing, and tax are critical if you want to advance in the profession. In ACC 550 Applied Accounting Research, you’ll develop those skills and learn to apply them to research questions commonly faced by practicing accountants and financial managers.

Course Overview

Throughout this capstone course, you will concentrate on accounting research as well as review factors and skills needed for the CPA exam. You’ll strengthen your critical thinking ability, an asset that helps professional accountants add value to their services. As you come to understand the importance of accounting research, its nature, definition, and its role, you’ll view research from the perspective of the Securities Exchange Commission (SEC). You’ll learn the expectations of the SEC in research and in drafting client letters, emails, and memos to a file.

You’ll discover how authoritative literature such as that of the Financial Accounting Standards Board (FASB) and Governmental Accounting Standards Board (GASB) is used during the research process. In mastering the five steps of database research strategies, you’ll reveal challenges common to accounting research and see how these obstacles can be overcome.

You’ll learn the contents of the FASB Accounting Standards Codification Research System (the Codification) and understand how to use it effectively and efficiently.

Effective Writing Skills

Learn how competent writing and critical thinking skills can help professional accountants add value to their services in ACC 550.

You’ll address the international accounting research environment, reviewing the methods and tools used to adhere to International Financial Reporting Standards (IFRS) and its related International Accounting Standards Board (IASB) structure and standard setting process.

Accountants and auditors perform a wide range of functions. Throughout the course, you will gain an understanding of the specific types of assurance and consulting services performed by accounting professionals. You’ll review the authoritative auditing support resources along with the key oversight entities such as the Public Company Accounting Oversight Board (PCAOB). You’ll also discuss the AICPA’s Standards and Code of conduct and the concepts of professional judgment and skepticism in audit research. Research is also a key component in forensic accounting and fraud research. To that end, you’ll examine the various research tools and technologies used in fraud examinations/investigations.

Sample Assignment

Identify an accounting issue and write a research paper that effectively communicates your findings and contributes to the profession using techniques covered in the course.

Course Topics

Throughout each week of the course, you will focus on a core topic or theme. Sample topics are listed below and are subject to change based on the instructor.

• Introduction to Applied Professional Research
• Critical Thinking and Effective Writing Skills for the Professional Accountant
• The Environment of Accounting Research
• Financial Accounting Research Tools
• The Environment of International Research
• Assurance Services and Auditing Research
• Redefining the Research Process
• Forensic Accounting Research

What You’ll Learn

You will focus on critical thinking and writing skills through a research process in ACC 550.

• Understand applied professional research within the practice of accounting.
• Demonstrate critical thinking and effective writing skills by completing various foundational, research, discussion, and writing assignments.
• Examine current ethical, financial, international, forensic, and assurance/auditing research topics.
• Know the most recognizable practitioner accounting journals and learn to apply research tools and techniques to investigate and report on current accounting topics.

Through ACC 550, you’ll improve your research, writing, and presentation skills as they relate to the field of accounting. For more information about this course or other courses in The University of Scranton’s online Master of Accountancy degree,  request more information or call us today toll-free at (866) 373-9547.

The content presented on this page is representative information for example purposes and is subject to change as course and student needs change over time.

Programs that include this course

• Online Master of Accountancy (MAcc) Degree

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Accounting for nonfungible tokens (NFTs)

Issues In-Depth| May 2024

What your company should know as an NFT seller, purchaser, marketplace or custodian.

This publication explores the accounting for nonfungible tokens (NFTs) and spotlights accounting challenges that can arise for an NFT seller, purchaser, marketplace or custodian.

Applicability

• Entities that sell, own, market (e.g. marketplaces) or hold NFTs for others.
• In a snapshot

Amidst the excitement of this revolutionary technology, it can be easy to think of an NFT as a new product or asset to be sold or held in and of itself. After all, a bitcoin (BTC) or ether (ETH) token is itself a unit of value. Why would an NFT be any different? 

A BTC’s or ETH’s fungibility and acceptance as an independent unit of exchange gives it value in the marketplace, even though it confers no continuing contractual rights or obligations on parties selling or purchasing the token. Conversely, an NFT, by definition and design, represents – and therefore derives its value from – a unique collection of rights and obligations memorialized on the applicable blockchain (e.g. Ethereum, Solana or Flow). For example:

• The  purchase  of an NFT frequently confers on the purchaser (1) a  right  to use the seller’s (or another creator’s) IP and, potentially, other rights (e.g. to attend one or more future events or exclusive access to  future  NFTs), as well as (2) an  obligation  to abide by the terms of the license and other terms and conditions (e.g. to pay a royalty to the seller and/or IP creator if the purchaser resells the NFT). 
• By contrast, the  sale  of an NFT may grant the seller rights to present (and potentially future) consideration, as well as  multiple  obligations; for example, to transfer a license to underlying IP (e.g. a digital image or video), to provide other goods or services and refrain from licensing the IP to another party.

Correctly identifying the rights conveyed and obligations conferred by the NFT and properly assessing them under the appropriate US GAAP is critical to accurate NFT accounting.

Once the rights and obligations and applicable US GAAP are completely and accurately identified, an entity’s accounting for the sale or purchase of an NFT should not, in general, differ from that which would result from a non-NFT arrangement giving rise to the same rights and obligations.

Report contents

• General principles
• NFT sellers
• NFT purchasers
• NFT marketplaces
• NFT custodians

Download the document:

Accounting for NFTs

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Case: Taxpayer Not Entitled to Tax Credit for “Funded” Research, Tax Court Decision Affirmed (8th Cir.) (IRC §41)

Taxpayer, an engineering firm that created structural designs for building projects, was not entitled to research tax credits under I.R.C. §41 for its expenses in creating the designs because the research was “funded,” within the meaning of §41(d)(4)(H), the Court of Appeals for the Eighth Circuit held, affirming the decision of the Tax Court. Taxpayer argued that it was entitled to the research credit because its right to payment was contingent on the success of its research, and its client contracts had inspection, acceptance, and quality assurance provisions. The court disagreed, concluding that, although Taxpayer was required to provide deliverables ...

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