A body of the American Institute of Certified Public Accountants is developing some professional guidance on how to value and account for any in-process research and development that is acquired in a business combination, such as a promising new technology or drug that is still under development.

The AICPA's Financial Reporting Executive Committee has published a working draft of a new valuation and accounting guide, titled Assets Acquired to be Used in Research and Development Activities, to replace a 2001 practice aid. The new guide is meant to provide updated guidance and illustrations that would be helpful to valuation specialists, preparers of financial statements, and external auditors. It offers some professional advice covering initial and subsequent accounting for acquired IPR&D, as well as valuation and disclosures.

The accounting for IPR&D acquired in the course of a business combination has changed a great deal in the past decade, says Larry Gray, a FinREC member and a partner with accounting firm EisnerAmper. Two major accounting pronouncements in particular have changed the way companies are required to account for IPR&D, he says. Those are Financial Accounting Statement No. 141R: Business Combinations, now contained in the Accounting Standards Codification under Topic 805, and FAS 157: Fair Value Measurements, now codified under Topic 820.

One of the biggest changes in the accounting, says Gray, is the requirement under business combination rules to treat IPR&D as an intangible asset with an indefinite useful life, and therefore capitalize and write it down over time rather than expense it upon acquisition. Then when a new approach to fair value measurement rules took effect, that led to big changes in how companies approach the valuation of IPR&D. Even further, the economic crisis and recession produced tension over how to apply market-based approaches to measure fair value, leading to even further challenges in valuing and accounting for IPR&D, he says.

While the Financial Accounting Standards Board writes the accounting rules that are codified into authoritative Generally Accepted Accounting Principles, FinREC's guidance represents some illustrations and guidance that can be helpful to implementation, Gray says. The committee is accepting comments on the draft guidance through mid-March, hoping to finalize it by the middle of 2012, he says.