Accounting for Intellectual Property Products: International Guidelines for National Economic Accounting and U.S. Rules for Financial Accounting

The international guidelines for national economic accounting recommend capitalizing expenditures related to intellectual property products (IPPs) in some cases where U.S. rules for financial accounting require immediate expensing of the same expenditures. This paper outlines the international guidelines and the U.S. rules for expensing or capitalizing expenditures related to IPPs. The paper highlights notable differences in accounting for four categories of IPPs identified in the international guidelines: 1) research and development, 2) mineral exploration and evaluation, 3) computer software and databases, and 4) entertainment, literary, and artistic originals. In addition to the accounting differences, the paper introduces a measurement challenge associated with the concept of current cost accounting under national economic accounting and demonstrates that national economic accounting measures of production and income and financial accounting measures of operating income and net income are all higher when expenditures related to IPPs are capitalized.