The Importance of Research and Development in Intangible Assets

The Importance of Research and Development in Intangible Assets

Introduction:

Research and development (R&D) play a crucial role in the creation of intangible assets for organizations. However, it is important to understand the distinction between the phases of research and development, as well as the criteria for recognizing intangible assets resulting from these activities. This article will delve into the requirements for recognizing intangible assets, the activities involved in research and development, and the evaluation procedures for assessing the effectiveness of controls. By understanding these concepts, organizations can make informed decisions about their investments in R&D and maximize the potential benefits of their intangible assets.

Recognizing Intangible Assets:

According to the guidelines, no intangible asset resulting from research or the research phase of an internal project should be recognized. Instead, expenses related to research should be recognized when incurred. On the other hand, an intangible asset resulting from development or the development phase of an internal project should only be recognized if certain criteria are met.

These criteria include demonstrating the technical feasibility of completing the intangible asset, the intention to complete and use or sell it, the ability to use or sell the asset, the expected economic benefits it will generate, the availability of resources for development, and the ability to reliably measure the costs attributed to the asset during its development. Additionally, market existence or internal utility must be demonstrated for intangible assets intended for internal use.

Activities in Research and Development:

Activities in the research phase encompass efforts to obtain new knowledge, the evaluation and selection of applications for research results or other knowledge, the search for alternatives in materials, devices, products, processes, systems, or services, and the formulation, design, evaluation, and selection of possible alternatives for new or improved materials, devices, products, processes, systems, or services.

Development activities, on the other hand, involve the design, construction, and testing of prototypes and pre-production or pre-utilization models, the design of tools and molds involving new technology, the operation of pilot factories, and the design, construction, and testing of chosen alternatives for new or improved materials, devices, products, processes, systems, or services.

Evaluation Procedures for Control Effectiveness:

To assess the effectiveness of controls relevant to the design and implementation of intangible assets, auditors can employ various evaluation procedures. These may include making inquiries to personnel within the organization, observing the application of specific controls, inspecting documents and reports, and tracing transactions through relevant information systems.

Actionable Advice:

• 1. Implement a robust research and development framework: Establish a structured process for conducting research and development activities, ensuring that they align with the organization's strategic objectives. This framework should involve clear guidelines for recognizing intangible assets and criteria for assessing their viability.

• 2. Foster collaboration between research and development teams: Encourage cross-functional collaboration between research and development teams to facilitate the exchange of ideas and knowledge. This collaboration can lead to more innovative solutions and enhance the overall effectiveness of research and development efforts.

• 3. Regularly evaluate control effectiveness: Conduct periodic evaluations of the controls in place for intangible asset development. This evaluation should include procedures such as inquiries, observations, inspections, and tracing transactions to ensure that the controls are adequately designed and implemented.

Conclusion:

Recognizing the importance of research and development in creating intangible assets is crucial for organizations looking to enhance their competitive advantage. By understanding the criteria for recognizing these assets, the activities involved in research and development, and the evaluation procedures for control effectiveness, organizations can optimize their investments in R&D and capitalize on the potential economic benefits. Implementing a robust research and development framework, fostering collaboration between teams, and regularly evaluating control effectiveness are key steps toward achieving success in this area.