The controversy surrounding the accounting for R&D expenditures reflects a debate about whether such expenditures meet the definition of an asset. If so, then an "expense all R&D costs" policy results in overstated expenses and understated assets.

Essentially, what exists now as a result of how GAAP mandates R&D be treated, is that a company's products/services that were internally developed, must be expensed rather than be recorded as an asset. Consider the pandemic that the world experienced in 2020, and that we're still experiencing today. Major pharmaceutical companies jumped in to create vaccines such as the Pfizer vaccine, Moderna, AstraZeneca, and J&J vaccines. You would think that these vaccines would be major assets for the company or would they?

 

Q#1 - Explain how these pharmaceutical companies would account for these vaccines under Generally Accepted Accounting Principles.

Q#2 - As you can probably imagine, there is an ongoing controversary as to how R&D costs should be accounted for. Do you think that it is 'right' that these companies account for these vaccines this way? Why? Discuss your point of view.