Stephen_NZ --
A fascinating topic, particularly when looking at how corporations are
managing their R&D efforts in a global economy. There are some
significant differences in strategy and great debates over the
process.
But let's start with the definitions first because there are
differences between U.S. accounting principles, U.S. tax law and
International Accounting Standards. Though you are unlikely to be in
the U.S., all of the corporations mentioned have significant American
operations and so their reporting conforms to the Financial Accounting
Standards Board (FASB). Similarly, U.S.-based corporations with
overseas operations can be expected to conform to IAS 38.
R&D DEFINED
------------
There is an excellent overview of accounting differences in Joseph
Oliver's July, 2003 article:
The CPA Journal
"Accounting and Tax Treatment of R&D: An Update" (July, 2003)
http://www.nysscpa.org/cpajournal/2003/0703/dept/d074603.htm
The key points that are that SFAS2, Accounting for Research and
Development Costs, is the guiding document for U.S. Generally Accepted
Accounting Principles (GAAP). Under it, research is viewed as
"planned search or critical investigation aimed at discovery of new
knowledge." The D portion is translating that research or other
knowledge "into a plan or design."
Only rarely can R&D be capitalized -- in the case of software covered
by SFAS86, Accounting for the Costs of Computer Software to be Sold,
Leased or Otherwise Marketed. However, equipment with a multi-year
life can be capitalized. (I don't want to get into side issues but
this can be a major difference in reported earnings between software
companies. Microsoft, for example, has a policy of expensing all
development -- which reduces GAAP earnings but maximizes cash flow by
reducing current period taxes.)
IAS Standard 38, Intangible Assets, differs from U.S. accounting by
breaking R&D into its two parts: R should be expensed; D should be
capitalized if the benefits come downstream.
I won't go into tax treatment -- that's subject to rapid changes but
Oliver's article summarizes the current situation well.
Here are some things generally EXCLUDED from R&D under SFAS2: legal
fees for patents; cost of land; engineering work done related to
production; quality control; product refinements; custom adaptations;
designs of tooling; construction of facilities or equipment related to
production.
What is allowed is lab research; equipment designs involving new
technology; prototype design, manufacture and testing
(pre-production); manufacturing feasibility work; modifications of
product or process design.
Some other resources for you:
CPAClass.com
"Generally Accepted Accounting Principles in the U.S."
http://cpaclass.com/gaap/gaap-us-01a.htm#SFAS
International Accounting Standards Board
"Standards"
http://www.iasc.org.uk/cmt/0001.asp?n=62&s=10194106&sc={7D8451C9-0EF1-4662-9E8F-D7D75B687F7D}&sd=950422799
COMPANY DATA
------------
In order to make this data more legible and complete, I've done two things:
1. checked Hoover's Online to broaden the number of major engineering
firms. Hoover's Online lists 3 key competitors for each company, so
I've added ALSTOM, a French company, to the list:
Hoover's Online
Home Page
http://www.hoovers.com/free/
2. I've used a spreadsheet to put 2002 and 2001 numbers from each
company's annual report or Form 10-K (the annual report in a specific
format for SEC reporting requirements). These audited reports will
conform to accounting standards and can be found at the SEC Edgar
site:
U.S. Securities & Exchange Commission
EDGAR Search page
http://www.sec.gov/edgar/searchedgar/companysearch.html
If you find that the SEC site has too much information, generally
companies have their annual reports for the past year or two linked
under "Investor Relations" sections. I've included a number of direct
links to the annual report in the spreadsheet, though some were too
long to be practical. Where possible, I've noted whether companies
follow U.S. GAAP or IAS standards for reporting.
Many companies report R&D spending, as required by the SEC, but rather
than include it in a breakdown of operating expenses will put it in
their "Notes to Consolidated Statements." Only one company fails to
break out R&D spending, Invensys PLC. It is not apparently available
in financial statements, company presentations to
analysts/shareholders or even in SEC filings.
And I've taken the data and posted it here because a spreadsheet is
much better than the text-only format of Google Answers. You may wish
to download the spreadsheet in case the website is down at any point:
"R&D Spending" (Omnivorous-GA, Nov. 15, 2003)
http://www.mooneyevents.com/randd.xls
RESEARCH ON R&D
---------------
R&D research and analyses are continual, as technology companies
generally recognize that half of what they're selling today wasn't on
the market 5 years ago. Companies chose varying strategies with
respect to R&D and they make an interesting contrast. And many
corporations have adopted "diversification" strategies suggested by
financial models (like Black-Scholes' Capital Asset Pricing Model) to
take "options" on new technology through technology investments or
joint ventures.
What follows is an interesting set of articles, though by no means a
comprehensive overview of literature on R&D spending.
I used a fee-based database to get this article (Expanded Academic
ASAP). You may wish to gain access to it via your local library or
the link below is direct to The Economist site. The article discusses
differences in R&D spending between countries, particularly between
the U.S. and Europe:
The Economist
"Reinventing Europe" (Sept. 6, 2003)
http://www.economist.com/displaystory.cfm?story_id=S')8%2C.PQ%3B%20!0%23T%0A
Jeffrey Immelt took charge from as chairman of General Electric and
immediately made R&D investment a key part of his growth strategy.
Managing R&D efficiently has always been a corporate problem and
Immelt makes several strategy decisions to increase its effectiveness.
They are discussed in these two articles. Again, if they're not
available for free on the Internet, you'll likely find that a local
library has them available either in print versions of the publication
or via an online service like Proquest Magazines or Expanded Academic
ASAP:
Technology Review
"GE Finds Its Inner Edison" (October, 2003)
http://www.techreview.com/articles/buderi1003.asp
Business Week
"Reinventing Invention: How GE's Scott Donnelly is Overseeing a $100M
R&D Makeover" (Oct. 6, 2003)
http://businessweek.com/magazine/content/03_40/b3852041_mz009.htm
Business Week
"Speaking Out: The View from the Top: BW Asks Techdom's Heaviest
Hitters to Weigh in on the Future of Innovation" (Aug. 25, 2003)
http://www.businessweek.com/magazine/toc/03_34/B38460333futuretech.htm
The Business Week article above is part of an entire issue on
innovation topics and includes not just Immelt but Bill Gates and
academics such as Paul Saffo and Nicholas Negroponte.
Another Business Week article discusses the changes in R&D and moves
towards more partnering in technologies:
Business Week
"Reinventing Corporate R&D" (Sept. 22, 2003)
http://www.businessweek.com/magazine/content/03_38/b3850067.htm
Google search strategy:
"research and development spending" + engineering
"R&D spending" + FASB
Best regards,
Omnivorous-GA |
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