First of all—don’t call it a “practice aid.” The current working draft of the AICPA’s Assets Acquired to be Used in Research and Development Activities is now known as “an Accounting and Valuation Guide,” David Dufendach (Grant Thornton) explained, during his recent BVR webinar. More importantly, while the former practice aid focused on business combinations, the new guide “has expanded to talk about IPR&D valuation in the context of a non-business combination or an asset acquisition,” Dufendach said. He highlighted the following “high-level accounting issues” that comprise the “really big” changes:
- Unit of account. Factors in considering whether to combine IPR&D assets or value and record them separately include: their phase of development; the nature of the activities involved; and the intent to manage and/or transfer the assets (in combination or separately).
- Defensive assets. For those assets the acquirer will hold, abandon, or employ in some way other than their highest and best use, the guide suggests considering their useful lives “as a function of the life of the asset being defended,” Dufendach said.
- Core technology. The new guide dispenses with any definition or description of “core technology,” because under ASC 805, “these types of assets, processes, property, and institutional understandings may meet the criteria” for recognition on their own.
The new guide also covers “at length” the issues of recognition criteria as well as attributes of an acquired IPR&D project, Dufendach said. There is also extensive commentary on determining the useful life of IPR&D assets, highest and best use, and market participants. “For valuation specialists, I just remind everyone to pay very close attention to the accounting related part of the new guide, because it has a big impact on the way we think about valuation methods and assumptions and our results.”