Development costs

Under IFRS or IAS 38, development costs are capitalized when technical and economic feasibilities are capable to be demonstrated under certain criteria. Compared with US GAAP, capitalization is more difficult because of the additional requirement of economic feasibility. The effect of this possible planned shift is difficulty of capitalizing costs under IFRS that could be amortized or depreciated and hence cost could be delayed in earlier years of operation and hence possibly make the company look more profitable for investment purposes.

Proctor and Gamble’s 2008 financial statements revealed that its research and development costs are charged to expenses at $2,226 in 2008, $2,112 in 2007 and ,075 in 2006.

This means that the company would most likely be doing what would most probably be done under IFRS. Since the company has not claimed to have capitalized a part of development then shifting to IFRS under said item would not be an issue. As to which standard would give more accurate financial statement, would depend on the plausibility of assumptions made.

This researcher is of the belief that the IFRS computation would be as accurate with that US GAAP since the shift to IFRS would not result to lower developments cost that could affect the net income of the company. However, there is an a more remote possibility in the future to capitalize cost under IFRS that could be possibly done under US GAAP because of the more stringent requirement to capitalize under the IFRS.

3. Conclusion

It can be concluded that the difference lies in the possibility of capitalizing the developments costs under both US GAAP and under IFRS.

Capitalizing development costs enables the company to defer the costs through periodic depreciation or amortization and hence it could make the profitability picture better than when every development costs are expensed outright. Proctor and Gamble could not look more profitable under earlier operations under either standard because of the company have treated as expenses developments cost in its financial statements.

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