The AICPA recently issued a new Accounting and Valuation Guide, Assets Acquired to Be Used in Research and Development Activities. This publication provides nonauthoritative guidance on the accounting for and valuation of intangible assets acquired by an entity that are used in research and development activities (IPR&D assets). The guide also discusses the disclosure requirements for an IPR&D asset acquired in an asset acquisition or business combination. The publication updates the guidance previously released in a 2001 AICPA Practice Aid.¹

As noted on the AICPA’s Web site, topics covered in the guide include the following:

• Initial and subsequent accounting for IPR&D assets acquired in a business combination and an asset acquisition.
• Key accounting considerations such as "used in R&D activities" criteria, unit of account, defensive IPR&D assets, useful life of completed intangible assets used in R&D activities, and elimination of core technology concept.
• Detailed information on subsequent Day 2 accounting for acquired IPR&D assets, including such issues as determining useful life, amortization, and impairment testing.
• Step-by-step guidance on how to measure fair value of IPR&D assets acquired in a business combination, asset acquisition, or for impairment testing and measurement purposes, including detailed discussions and examples of how to apply multiperiod excess earnings method, relief from royalty method and decision tree analysis.
• Comprehensive example which illustrates using the relief from royalty method to value trade name and patents, the “with and without” method to value customer relationships, and the multiperiod excess earnings method to value developed technology and IPR&D.
• Detailed discussion of steps to derive, prepare, and analyze the prospective financial information for IPR&D assets.

The guide, which can be purchased on the AICPA’s Web site, will be available on Technical Library soon.

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1 AICPA Practice Aid prepared by the IPR&D Task Force, Assets Acquired in a Business Combination to Be Used in Research and Development Activities: A Focus on Software, Electronic Devices, and Pharmaceutical Industries.