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Research and development (R&D) costs need to be considered to determine whether they should be capitalized or expensed as incurred. Additionally, arrangements with other parties to perform R&D activities for an entity are often complex and judgment is required to determine the appropriate accounting treatment.

8.3.1 Accounting for R&D costs

R&D costs may be incurred by performing R&D directly, contracting with another party to perform R&D activities, or purchasing completed or partially completed R&D from another party. This section discusses R&D activities performed directly by an entity or contracted to another party.
R&D costs are accounted for in accordance with ASC 730, Research and Development. ASC 730-10-25 requires that all R&D costs be recognized as an expense as incurred. However, some costs associated with R&D activities that have an alternative future use (e.g., materials, equipment, facilities) may be capitalizable. See PPE 8.3.3 for additional information on costs associated with R&D activities that may qualify for capitalization.
ASC 730-10-25 does not apply to other costs that might fit a broader definition of R&D, such as market research and testing, routine product testing and quality control, routine design of tools, and trouble shooting in connection with commercial production. Additionally, ASC 730 does not apply to the following types of costs:
  • R&D activities conducted for others under a contractual arrangement, including indirect costs that are specifically reimbursable under the terms of a contract
  • The acquisition, development, or improvement of internal processes, including costs for computer software, that are to be used in selling or administrative activities (ASC 350-40)
  • Activities unique to the extractive industries, such as prospecting, acquiring mineral rights, exploration, drilling, mining, and related mineral development
  • Routine or periodic alterations to existing products, production lines, manufacturing processes, and other ongoing operations, even though those alterations may represent improvements
  • Market research or market testing activities
  • Research and development assets acquired in a business combination
See BCG 4.3.4.1 for information about the accounting for completed or partially completed R&D acquired in a business combination, PPE 2.4.3 and PPE 2.7 for information about the accounting for completed or partially completed R&D acquired in an asset acquisition, and PPE 7.3.1 and PPE 7.3.3 for information about costs incurred (including R&D costs) relating to software.
Additionally, the AICPA has issued the AICPA Accounting and Valuation Guide: Assets Acquired to Be Used in Research and Development Activities. While the AICPA guide is non-authoritative, it reflects the input of financial statement preparers, auditors, and regulators and serves as a resource for reporting entities that acquire in-process R&D.

8.3.2 Definition of R&D costs

R&D costs are defined in ASC 730.

Definition from ASC 730-10-20

Research and Development: Research is planned search or critical investigation aimed at discovery of new knowledge with the hope that such knowledge will be useful in developing a new product or service (referred to as product) or a new process or technique (referred to as process) or in bringing about a significant improvement to an existing product or process.
Development is the translation of research findings or other knowledge into a plan or design for a new product or process or for a significant improvement to an existing product or process whether intended for sale or use. It includes the conceptual formulation, design, and testing of product alternatives, construction of prototypes, and operation of pilot plants.

The definition of development in ASC 730-10-20 refers to a plan or design for a new product or process or for a significant improvement to an existing product or process whether intended for sale or use. Reference to “or use” would appear to broaden the definition of development costs beyond products or processes intended for sale. However, ASC 730 generally focuses on product-oriented R&D activities, with ASC 985-20-25 confirming that development costs contemplated by ASC 730 are those connected with products to be sold, leased, or otherwise marketed to others. Development of internal processes for use in selling, general, and administrative activities are not considered R&D.
Refer to ASC 730-10-25-2 for categories of costs identified as R&D activities. Figure PPE 8-2 includes examples from ASC 730-10-55-1 through ASC 730-10-55-2 of activities typically included in and excluded from R&D.
Figure PPE 8-2
Identification of R&D activities
Included
Excluded
Laboratory research aimed at discovery of new knowledge
Engineering follow-through in an early phase of commercial production
Searching for applications of new research findings or other knowledge
Quality control during commercial production including routine testing of products
Conceptual formulation and design of possible product or process alternatives
Trouble shooting in connection with breakdowns during commercial production
Testing in search for or evaluation of product or process alternatives
Routine, ongoing efforts to refine, enrich, or otherwise improve upon the qualities of an existing product
Modification of the formulation or design of a product or process
Adaptation of an existing capability to a particular requirement or customer’s need as part of a continuing commercial activity
Design, construction, and testing of pre-production prototypes and models
Seasonal or other periodic design changes to existing products
Design of tools, jigs, molds, and dies involving new technology
Routine design of tools, jigs, molds, and dies
Design, construction, and operation of a pilot plant that is not of a scale economically feasible to the enterprise for commercial production
Activity, including design and construction engineering, related to the construction, relocation, rearrangement, or start-up of facilities or equipment other than (1) pilot plants and (2) facilities or equipment whose sole use is for a particular research and development project
Engineering activity required to advance the design of a product to the point that it meets specific functional and economic requirements and is ready for manufacture
Legal work in connection with patent applications or litigation, and the sale or licensing of patents
Tools used to facilitate research and development or components of a product or process that are undergoing research and development activities

8.3.3 Capitalization of R&D costs

ASC 730-10-25-2 indicates that capitalization is appropriate only for those expenditures on materials, equipment, and facilities that are acquired or constructed for R&D activities and that have an alternative future use. Similarly, intangible assets acquired through an asset acquisition for use in R&D activities that have an alternative future use should be capitalized. After capitalization, the cost of materials consumed in R&D activities, the depreciation of equipment or facilities used in R&D activities, and the amortization of intangible assets used in R&D activities should be expensed as R&D costs.
Materials, equipment, and facilities acquired or constructed for R&D activities and acquired intangible assets to be used in R&D activities that have no alternative future use, and therefore no separate economic value, should be expensed as R&D costs as incurred. Personnel costs, contract services for R&D activities performed by others, and indirect costs relating to R&D activities should also be expensed as R&D costs as incurred.
An exception to the alternative future use requirement exists for intangible assets acquired in a business combination for use in R&D activities. These acquired intangible assets should be capitalized (i.e., recognized in acquisition accounting) regardless of whether they have an alternative future use. See BCG 4.3.4.1 for additional information on R&D intangible assets acquired in a business combination.
Chapter 3 of the AICPA’s Accounting and Valuation Guide: Assets Acquired to Be Used in Research and Development Activities includes interpretive guidance to assist in determining whether tangible assets acquired that will be used in R&D activities meet the criterion of having an “alternative future use.” Judgment is required to determine whether the “alternative future use” criterion has been met and conclusions should be based on entity-specific facts and circumstances.
Example PPE 8-7 illustrates R&D capitalization vs. expense considerations and Example PPE 8-8 illustrates the accounting for R&D costs.
EXAMPLE PPE 8-7
R&D capitalization vs. expense considerations
PPE Corp incurs costs to construct assets that will be used to produce a drug that is in the final stages of Food and Drug Administration (FDA) regulatory approval. These costs represent expenditures necessary to construct the plant and facility that will be used to produce the drug at commercially viable levels once regulatory approval has been obtained. The project is in an advanced stage and PPE Corp believes regulatory approval will be obtained and that recovery of the costs to construct the assets via future cash flows is probable.
How should PPE Corp account for the costs associated with the construction of the facility?
Analysis
The important distinction is whether the above activities represent research and development costs subject to the guidance in ASC 730. Since the construction activities pertain to tangible assets that will be used to produce the end product at commercially viable levels, rather than costs associated with testing the drug or the construction of a pilot facility or pre-production prototype, the construction project would not be considered a research and development cost as contemplated in ASC 730-10-55-1. Instead, the costs are subject to the general concepts of fixed asset accounting and impairment considerations of ASC 360-10.
In this fact pattern, the company is in an advanced stage and regulatory approval is probable. As PPE Corp believes that use of the assets and recovery of the costs via future cash flows is probable, it would be appropriate for PPE Corp to capitalize the construction costs incurred as plant and equipment. The assets would be subject to impairment testing under ASC 360 based on the expected future cash flows of the appropriate asset grouping, which would consider the various potential outcomes of the regulatory approval process and their associated likelihoods.
EXAMPLE PPE 8-8
Accounting for R&D costs
PPE Corp manufactures GPS technology products for use on golf courses. PPE Corp has been in existence for many years and has multiple products available on the market that use similar underlying technology (primarily its GPS technology along with its proprietary course-mapping content). PPE Corp has begun investing in the future generation of products, some of which utilize similar underlying technology (but contain new features) and others that are completely new products, both to the company and the market. Costs incurred to date are $6 million, of which $4 million is related to the development of enhancements to existing products, and $2 million is related to the development of new products.
How should PPE Corp account for the $6 million of product development costs?
Analysis
ASC 730-10-55-1 provides a list of items typically included in R&D, which includes conceptual formulation and design of possible product alternatives and modification of the design of a product. ASC 730-10-05-2 indicates that future economic benefits are uncertain for most research and development costs, which is the driving force in the immediate expense recognition for R&D costs. Since the product development costs incurred by PPE Corp are related to both the modification of existing products as well as the conceptual formulation of new products, these product development costs would be within the scope of ASC 730 and classified as research and development costs. Accordingly, the product development costs should be expensed as incurred.

8.3.4 R&D funding arrangements - overview

R&D funding arrangements between a reporting entity and partners or investors, who are often financial or passive investors, typically involve the reporting entity receiving funding in exchange for an obligation to share the financial risks and rewards of the R&D efforts. When negotiating these funding arrangements, reporting entities and financial investors often have different priorities, which may lead to a need for judgment to determine the appropriate accounting for these arrangements.
R&D funding arrangements may extend over different phases of a product’s life cycle, from early stage development to the marketing of a finished product. Different levels of risk and reward may be transferred between parties depending on the stage in a product’s life cycle in which an agreement is established. At one end of the spectrum, an arrangement may be a debt financing for R&D with a well-defined obligation for repayment. At the other end of the spectrum, an arrangement may involve R&D risk sharing between the parties and encompass complex components, such as new legal entities, put and call options on an entity’s equity or intellectual property, debt, or equity instruments, and royalty arrangements. There is no “one size fits all” solution or a “prepackaged” R&D funding strategy. Each arrangement should be evaluated by considering its specific facts and circumstances to determine the accounting and financial reporting impacts.

8.3.4.1 R&D funding arrangements – consolidation considerations

One common form of an R&D funding arrangement includes the creation of a new entity (“NewCo”) with the specific purpose of facilitating the arrangement (e.g., a limited partnership). Typically, NewCo would be responsible for performing R&D (which may be outsourced) and often there is a predetermined exit (e.g., providing the reporting entity with a contingent call option or contingent forward purchase obligation on either the asset or the shares of the NewCo) only upon successful completion of the R&D.
When an R&D arrangement is established through a NewCo, companies with an interest in the NewCo should evaluate whether they are required to consolidate the entity under the guidance in ASC 810, Consolidation, and whether they are still subject to ASC 730-20 (see PPE 8.3.4.2). This determination will typically require assessing if the NewCo is a variable interest entity (VIE), whether the reporting entity holds a variable interest in the NewCo, and, if so, whether the reporting entity is the primary beneficiary of the VIE. See CG 2 for additional information on accounting for VIEs, the guidance for which should be applied to NewCo funding arrangements.

8.3.4.2 R&D funding arrangements – direct R&D funding

Another common form of an R&D funding arrangement is often referred to as “direct” R&D funding. Typically, direct R&D funding arrangements involve an investor providing direct funding to the reporting entity for a specified R&D project in return for future payments (e.g., milestone payments, royalties on sales) contingent upon successful completion of the R&D. When evaluating the accounting model for direct R&D funding arrangements (particularly in situations when a new legal entity is not established), a reporting entity should assess whether the arrangement is within the scope of ASC 730-20, Research and Development Arrangements, or ASC 470-10, Debt - Overall. In addition, a reporting entity should consider whether the arrangement either meets all of the characteristics of a derivative or contains an embedded derivative, and if so, whether any of the scope exceptions to derivative accounting are applicable.
ASC 730-20 provides guidance on the accounting by an entity that is a party to an R&D arrangement in which it can obtain control of the results of R&D that is funded partially or entirely by others. ASC 470-10-25 (the “sales of future revenues guidance”) provides guidance on the accounting by an entity that receives a payment of cash from an investor and in exchange, agrees to pay the investor a specified percentage or amount of revenue for a particular product line, business segment, trademark, patent, or contractual right for a defined period of time.
To determine which guidance should be applied to the arrangement, the entity receiving funding must first evaluate the nature and substance of the risk associated with the stage of development of the R&D program being funded. If the reporting entity concludes that successful completion of the R&D program is probable at the inception of the arrangement, or the R&D program has already been completed and the related product has been approved (e.g., FDA approval of a new drug), ASC 470-10-25 should be applied. Under this guidance, the classification of the proceeds from an investor as either debt or deferred income will depend on the specific facts and circumstances of the arrangement. However, ASC 470-10-25-2 includes several factors that would create a presumption that the proceeds received should be classified as debt.
Alternatively, ASC 730-20 should be applied if, at the inception of the funding arrangement, the R&D risk is substantive and it is not yet probable that development will be successful. If any conditions exist that suggest it is probable an entity will repay any or all of the funds provided by another party regardless of the outcome of the R&D, an obligation should be recorded by the R&D entity for the amount to be repaid, even if there is no contractual obligation to repay. See PPE 8.3.4.3 for additional information on determining whether an arrangement represents an obligation to repay the funding party or a contract to perform services.
Certain funding arrangements that incorporate other significant risks (including legal, business, operational, time-to-market, etc.) should be evaluated to determine the applicable guidance. For example, if the predominant risk to the third-party investor’s ability to recoup its investment relates to the outcome of patent litigation, it may not be appropriate to evaluate the arrangement under ASC 730-20.

8.3.4.3 R&D funding arrangements – liability vs. contractual services

ASC 730-20 requires a reporting entity to determine the nature of the obligation it incurs when it enters an R&D funding arrangement. This guidance requires consideration of whether that arrangement is (1) an obligation to repay the funding party or (2) a contract to perform services.
In order to conclude that an obligation to repay the funding party does not exist under ASC 730-20, the transfer of financial risk associated solely with R&D from the reporting entity to the financial investor (or another counterparty) must be substantive and genuine. A critical factor is to determine who bears the risk of R&D failure and whether the reporting entity is obligated to repay any of the funds, regardless of the outcome of the research and development.
The transfer of financial risk associated with R&D may not be genuine if the reporting entity is committed to repay any of the funds provided by the other parties regardless of the outcome of the R&D. ASC 730-20-25-4 includes examples in which the reporting entity is committed to repay, which include:
  • the entity guarantees, or has a contractual commitment that assures repayment of the funds provided by the financial investor regardless of the outcome of the R&D;
  • the financial investor has rights to substitute R&D projects if the initial project is not successful and such substitution provides the financial investor with the ability to recoup some or all its funding;
  • the financial investor can require the reporting entity to purchase their interest in the R&D regardless of the outcome; or
  • the financial investor automatically receives debt or equity securities of the reporting entity upon termination or completion of the R&D regardless of the outcome.
In addition, although R&D funding arrangements may not include contractual provisions that require the reporting entity to repay any of the funds, conditions may indicate that the reporting entity is likely to bear the risk of failure of the R&D and will be required to repay all or a portion of the funds. If any portion of the funds provided by the investor must be repaid regardless of the outcome of the R&D activities, a repayment liability has been incurred under ASC 730-20.
ASC 730-20-25-6 includes examples of such conditions leading to the presumption that the reporting entity will repay the counterparties, including:
  • the reporting entity has indicated its intent to repay all or a portion of the funds provided regardless of the outcome of the R&D;
  • the reporting entity would suffer a severe economic penalty if it failed to repay any or all of the funds provided to it regardless of the outcome of the R&D;
  • a significant related party relationship between the company and the party funding the R&D exists at the time the company enters into the arrangement; or
  • the reporting entity has essentially completed the project before entering into the arrangement.
As indicated above, is if there is a significant related party relationship between the reporting entity and the parties funding the R&D activities, there is a presumption that the reporting entity will repay the counterparties. Whether a related party relationship is “significant” is a matter of judgment that will be influenced by the relative interests of the related parties in the funding parties and the R&D entity, as well as the presence of any influential parties (e.g., officers or directors of the funding parties) as investors in the R&D entity. ASC 730-20-S99-1 provides the SEC staff's views on what constitutes a significant related party relationship.

Excerpt from ASC 730-20-S99-1

Question 1: What does the staff consider a "significant related party relationship" as that term is used in FASB ASC subparagraph 730-20-25-6(c)?
Interpretive Response: The staff believes that a significant related party relationship exists when 10 percent or more of the entity providing the funds is owned by related parties. In unusual circumstances, the staff may also question the appropriateness of treating a research and development arrangement as a contract to perform service for others at the less than 10 percent level. In reviewing these matters the staff will consider, among other factors, the percentage of the funding entity owned by the related parties in relationship to their ownership in and degree of influence or control over the enterprise receiving the funds.

In some R&D arrangements, particularly those involving start-up companies, it may be unlikely the reporting entity will have the financial resources to repay the funds when the R&D efforts are completed. However, this does not eliminate the requirement for the reporting entity to record a repayment liability for the R&D funds received, since ASC 730-20-25-3 acknowledges that the liability may be repaid by the issuance of securities or by some other means. This is consistent with ASC 730-20-S99-1, which states that "an apparent or projected inability to repay the funds with cash (or debt which would later be paid with cash) does not necessarily demonstrate that the funding parties were accepting the entire risks of the activities."
Other examples in ASC 730-20-25-6 of conditions leading to the presumption that the R&D funds will be repaid is an indication of an intent to repay some or all of the funds, a "severe economic penalty" that would be suffered by the funding party if the funds were not repaid (e.g., loss of rights to a proprietary technology), or an R&D project that is “essentially completed” before entering into the arrangement. The list of examples included in ASC 730-20-25-6 is not all-inclusive and new provisions included in agreements or new conditions may arise that could have substantially the same effect. As a result of the general nature of the discussion in ASC 730-20-25-6, judgment may be required to determine whether the presumption that the enterprise has an obligation to repay the other parties has been overcome.
If a substantive and genuine transfer of financial risk to the funding parties has occurred because repayment of any of the funds depends solely on the results of the R&D having future economic benefit, ASC 730-20-25-8 requires that the obligation be accounted for by the R&D entity as a contract to perform R&D services for others. As a result, any funding received by the reporting entity under the arrangement would generally be recognized through the income statement, the timing of which will depend on the terms and conditions of the arrangement. ASC 730-20 does not include specific guidance on how the funding received in such a scenario should be recognized in the income statement. As a result, reporting entities should evaluate the nature of the arrangement and its relationship to the entity’s normal, ongoing operations in determining how the funding should be recognized in the income statement (i.e., as contra-R&D expense, revenue from a contract with a customer under ASC 606, a collaborative arrangement, other income).
Example PPE 8-9 illustrates the accounting for a direct R&D funding arrangement with no obligation to repay the funding.
EXAMPLE PPE 8-9
Direct R&D funding arrangement with no obligation to repay
Investor Co. partners with Pharma Corp. for the development of a pre-selected drug compound that is in Phase II clinical studies. Investor Co. and Pharma Corp. are not related parties. Funding is paid directly from the Investor Co. to Pharma Corp. (i.e., no separate legal entity is created) and Investor Co. commits up to a specified dollar amount to fund the R&D for the pre-selected compound. At the time of funding, successful development of the compound is not yet probable. Investor Co. will receive royalties from future sales of the compound if and when it is commercialized, contingent upon regulatory approval of the compound. Investor Co. will not receive any repayment if the compound is not successfully developed. Investor Co. has agreed with Pharma Co. on the selection of the compound and the overall development plan and budget but does not participate in any of the development or commercialization activities. The agreement requires Pharma Co. to use its best efforts to execute the development plan until regulatory approval or demonstration of failure. Pharma Corp. has concluded that the arrangement meets one of the derivative scope exceptions.
How should Pharma Corp. account for the funding received from Investor Co.?
Analysis
Given the nature of the development and regulatory process, the activities undertaken as part of the project would meet the definition of R&D in ASC 730-10-20. Based on the current phase of development, Pharma Corp. would likely conclude that R&D risk is substantive at the inception of the arrangement because successful development of the compound is not probable at that time. Accordingly, Pharma Corp. would apply ASC 730-20 to determine whether the funds received represent a liability to repay Investor Co. or an obligation to perform contractual services.
To conclude that a liability does not exist, the transfer of risk involved with the R&D from Pharma Corp. to Investor Co. must be substantive and genuine (i.e., it must not be probable that any of the funds would be repaid regardless of the outcome of the R&D). In this fact pattern, Pharma Corp. has no explicit or implicit obligation to repay any of the funds and there are no substitution rights or other arrangements that require Pharma Corp. to repay any of the R&D funds. As a result, Pharma Corp. would likely conclude that the arrangement is an obligation to perform contractual services. Because Investor Co. is not a customer and performing R&D activities for others is not part of Pharma Corp.’s normal, ongoing operations, Pharma Corp. may conclude that the funds should be recognized as contra-R&D expense in the income statement.

8.3.4.4 R&D funding arrangements – accounting for repayment obligations

ASC 730-20 does not include specific guidance with respect to the subsequent accounting for funds recognized as repayment obligations. In the absence of specific guidance, we believe when an obligation to repay the funding party has been incurred, the reporting entity should apply the concepts of ASC 470, Debt, in accounting for the repayment obligation.
ASC 730-20 also does not address the common situation when the amounts expected to be repaid to a lender exceed the R&D costs to be incurred. If the repayment obligation is expected to exceed the amount of the cash or other proceeds received, such excess should be accounted for not as R&D costs, but instead as interest cost over the estimated period of the obligation, following the guidance of ASC 835, Interest.

8.3.4.5 R&D funding arrangements – funding entity accounting

ASC 730-20-25-11 addresses situations in which a funding entity provides a loan or advance to another party that uses the funds to perform R&D. This guidance requires that if repayment of the loan or advance to the funding entity depends solely on the results of the research and development having future economic benefit, the loan or advance should be accounted for as R&D costs incurred by the funding entity. Consistent with the guidance of ASC 730-10-25-2(d), in situations when a reporting entity contracts with another party to perform R&D activities, the costs of services performed should be recorded as R&D costs in the period services are provided. This may require obtaining periodic progress reports and status updates from the third-party in order to assess the level of effort and progress to date.
Further, ASC 730-20-25-13 indicates that nonrefundable advance payments for future R&D activities should be deferred at the time of payment and subsequently recognized as R&D expense as the related goods are provided or services are rendered. These amounts should be reassessed on a periodic basis to determine whether it is probable that the goods or services will be provided under the arrangement. If a reporting entity does not expect that the goods will be provided or services will be rendered, the advance payment should be immediately recognized as an R&D expense.
In cases when interest is incurred on a loan to finance R&D activities, borrowing costs should be expensed as incurred. This is because R&D activities do not result in a qualifying asset for interest capitalization under ASC 835-20-15-5.
Example PPE 8-10 illustrates the accounting for a nonrefundable upfront payment made to another entity to conduct research on a contractual basis.
EXAMPLE PPE 8-10
Accounting for nonrefundable upfront payment to conduct R&D
Pharma Corp enters into a contract with Research Corp, a third-party professional research organization, to perform research activities for a period of three years in connection with a drug compound for a cancer treatment. Pharma Corp pays Research Corp a non-refundable upfront payment of $5 million to carry out the research under the terms of the contract. Research Corp is responsible for providing Pharma Corp monthly updates on the status of research activities performed. Pharma Corp has the ownership rights to all research performed, including the ability to control the research undertaken. Research Corp has no rights to use the rights of its research for its own purposes.
How should Pharma Corp account for the $5 million upfront payment made to Research Corp?
Analysis
The non-refundable upfront payment is for services that will be rendered for future R&D activities under an executory contract. In accordance with ASC 730-20-25-13, the $5 million upfront payment should be recorded as a prepayment and recognized as R&D expense based upon the pattern of performance (i.e., level of effort) as services are rendered by Research Corp. Pharma Corp should reassess each reporting period whether it expects the services to be rendered by Research Corp in order to assess recoverability of the prepayment.
If the payment to Research Corp represented an advance payment for specific materials, equipment, or facilities with no alternative future use, the payment would be recognized as R&D expense in the period of payment.

8.3.4.6 Disclosures – R&D funding arrangements

See FSP 3.6.5 for the presentation and disclosure requirements for research and development arrangements.

8.3.4.7 Accounting for collaborative arrangements

Reporting entities may enter into contractual arrangements to participate in a joint operating activity to develop and commercialize intellectual property (e.g., the development and commercialization of a new drug, software, computer hardware, or a motion picture). Such arrangements, referred to as collaborative arrangements, involve two or more parties that are (1) active participants in the joint operating activity and (2) exposed to significant risks and rewards dependent on the commercial success of the activity. ASC 808-10-15-9 indicates that those arrangements in which one party only provides funding or other financial resources for R&D activities and is not otherwise an active participant in the activities generally would not meet the definition of a collaborative arrangement. Alternatively, R&D arrangements between two parties that involve active co-development or co-marketing may meet the definition of a collaborative arrangement if certain criteria are met.
Reporting entities should consider whether R&D funding arrangements, or part of these arrangements, are within the scope of ASC 808, Collaborative Arrangements, when determining the appropriate income statement presentation, classification, and disclosure. See RR 2.4.1 for further discussion on collaborative arrangements.
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