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Accounting in Biomedical

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SUMMARY This essay is an attempt to understand the strengths, shortfalls and differences of current national and international accounting rules for reporting R&D expenditure, with a specific emphasis to pharmaceutical industry. This essay challenges the current dogma of considering R&D as an expanse and also provides some insights into overcoming these challenges.

INTRODUCTION Accounting is an art and science of communicating the financial information of the organizations to its managers, employees, investors, creditors etc. There are numerous rules and principals set to report and record these financial transactions, mainly govern by Financial Accounting Standards Board (FASB) in USA known as Generally Accepted Accounting Principles (GAAP) and International Accounting Standards Board (IASB) for international standards known as International Financial Reporting Standards (IFRS). Unlike other industrial sectors, Research and Development (R&D) is the key strength and major financial obligation of pharmaceutical companies. Depending on the size and growth stage, pharmaceutical companies spend 30-40% of their total revenue in R&D. Due to robust healthcare spending pharmaceutical industrial growth is rapidly sprouting worldwide. According to the recent IMS world review and McKinsey Global Institute Report (1), USA remains on top with 444 billion USD projected pharmaceutical markets in year 2015. Therefore, it is imperative to develop logically standardized GAPP and IFRS principals and processes for reporting R&D in financial statements. The disparities among current accounting practices related to R&D reporting makes it difficult to analyze the prospects of success of pharmaceutical company. In particular, financial statements of new pharmaceutical companies are misperceived with little or no cash flows and negative earnings due to high R&D

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