ASBJ 23
Partial Amendments to Accounting Standard for Research and Development Costs
Partial Amendments to Accounting Standard for Research and Development Costs is part of the Japan GAAP framework.
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Conceptual Framework Linkage
A deliberately simple, conservative principle – expense everything, immediately
J-GAAP's research and development accounting rests on a GENUINELY SIMPLE, foundational principle: ALL research and development COSTS – WHETHER "research" or "development" in nature – are EXPENSED AS INCURRED, WITHOUT any capitalisation option based on meeting specific development-stage criteria. ASBJ Statement No. 23 represents a "PARTIAL AMENDMENT" REFINING and CLARIFYING the application of this CORE principle (established under the earlier foundational Japanese R&D standard), rather than changing the underlying principle itself.
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Scope
All companies incurring research and development costs
This Statement applies to ALL companies incurring RESEARCH and DEVELOPMENT costs – expenditure aimed at the DISCOVERY of new knowledge (research) or the APPLICATION of research findings to a plan or design for new/improved products or processes (development).
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The Core Principle – All R&D Expensed as Incurred
No distinction between research and development for capitalisation purposes
UNLIKE some other frameworks that distinguish "RESEARCH" from "DEVELOPMENT" for capitalisation PURPOSES, J-GAAP treats BOTH categories THE SAME WAY – ALL research and development costs are recognised as an EXPENSE in the Statement of Income IMMEDIATELY as incurred, REGARDLESS of how far along the development process an activity may be, or how LIKELY future economic benefits may seem.
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No Development-Stage Capitalisation Option – Unlike IAS 38
The most conservative treatment among the major accounting frameworks
IAS 38 REQUIRES capitalisation of DEVELOPMENT costs (though NOT research costs) once SPECIFIC criteria are met (technical feasibility, intention and ability to complete, probable future economic benefit, reliably measurable costs). Even FRS 102 (UK GAAP) offers development cost capitalisation as a genuine POLICY CHOICE (see the companion FRS 102 poster). J-GAAP offersNEITHERa MANDATORY NOR an ELECTIVE capitalisation option for development costs – the GENERAL rule is IMMEDIATE expensing, FULL STOP, making J-GAAP's treatment of R&D genuinely the MOST CONSERVATIVE and SIMPLEST among the major frameworks surveyed in this poster series.
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The Software Cost Carve-Out
A narrow exception for software development costs, addressed separately
A NARROW exception exists for CERTAIN software development costs – where software is developed for EXTERNAL sale/lease, or for internal use, SEPARATE practical guidance permits CAPITALISATION of qualifying costs INCURRED after specific criteria are met (broadly PARALLELING how the US GAAP ASC 985/ASC 350-40 framework CARVES software costs OUT of the general R&D expensing principle under ASC 730 – see the companion ASC 985 poster). This CARVE-OUT is genuinely NARROW, however – it does NOT represent a general development-cost capitalisation option for R&D costs OUTSIDE the software context.
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What This "Partial Amendment" Refined
Clarifying scope and application, without altering the core expensing principle
This Statement REPRESENTS a "PARTIAL AMENDMENT" to Japan's foundational R&D cost standard – REFINING and CLARIFYING specific application questions (such as the PRECISE scope of what constitutes "research" or "development" activity, and how the standard interacts with SOFTWARE-specific guidance) WITHOUT altering the UNDERLYING, foundational "expense as incurred" principle itself, which has remained a CONSISTENT, STABLE feature of Japanese accounting practice.
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Worked Example – Expensing R&D Costs in Full
No capitalisation, regardless of the project's stage
Example: A pharmaceutical company's late-stage drug development
A pharmaceutical company incurs ¥400,000,000 on late-stage clinical trials for a promising new drug candidate, with regulatory approval considered highly likely based on results to date.
DESPITE the ADVANCED stage and HIGH likelihood of success, the ENTIRE ¥400,000,000 isEXPENSED IMMEDIATELYunder J-GAAP – there is NO capitalisation option, UNLIKE how an ENTITY reporting under IAS 38 might potentially CAPITALISE SOME of these late-stage development costs if the SPECIFIC IAS 38 criteria were met.
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Worked Example – the Software Carve-Out in Practice
A narrow exception, not a general rule change
Example: Software developed for external sale
A software company incurs ¥150,000,000 developing a commercial software product, AFTER technological feasibility has been established (per the narrow software-specific guidance).
This ¥150,000,000 MAY be CAPITALISED under the SPECIFIC software cost guidance CARVE-OUT – but this remains a NARROW EXCEPTION specific to SOFTWARE; the SAME company's OTHER, non-software R&D costs (e.g. hardware component research) would CONTINUE to be expensed IMMEDIATELY under the GENERAL rule.
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Disclosure Requirements
What ASBJ Statement No. 23 requires
Total amount of research and development costs expensed during the periodClassification of R&D expense within the Statement of Income (e.g. cost of sales or SG&A)
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Critical Judgments & Estimates
Where judgement matters most
SIGNIFICANT JUDGEMENTS
Whether a cost genuinely qualifies as R&D expenditure versus another cost categoryWhether the narrow software cost carve-out applies to a specific expenditure
SIGNIFICANT ESTIMATES
Generally minimal – the immediate expensing principle avoids most estimation complexity
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Relationship to IAS/IFRS and US GAAP
Comparison across all three major frameworks
FeatureJ-GAAP (ASBJ Statement No. 23)IFRS (IAS 38) / US GAAP (ASC 730)
Research costsExpensed as incurredExpensed as incurred – converged
Development costsExpensed as incurred – NO capitalisation optionIFRS: MANDATORY capitalisation once criteria met. US GAAP: generally expensed (similar to J-GAAP), with narrow exceptions
Software development costsNarrow carve-out permits capitalisationBoth frameworks carve out software costs from the general R&D principle – converged in APPROACH, if not in every mechanical detail
On GENERAL (non-software) R&D costs, J-GAAP is actually CLOSER to US GAAP's general expensing approach than to IAS 38's mandatory development cost capitalisation – a notable case where J-GAAP, US GAAP, and IFRS form a THREE-WAY comparison rather than a simple two-sided divergence.
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Statement Mapping
Where every R&D cost event lands
EventStatement(s) affectedNotes
R&D cost incurredP&LExpensed immediately, with a narrow software carve-out
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Related Standards
Cross-reference map
StandardConnection
ASBJ Statement No. 18Asset Retirement Obligations – a separate area where J-GAAP is instead genuinely converged with international practice, illustrating the topic-by-topic variability of J-GAAP's convergence position
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Quick-Reference Glossary
Research and development costs (研究開発費)
Expenditure on the discovery of new knowledge (research) or applying findings to new/improved products or processes (development), expensed as incurred under J-GAAP.
Software cost carve-out
A narrow exception permitting capitalisation of certain qualifying software development costs, separate from the general R&D expensing rule.
Financial statement key (Japan GAAP terminology)
BSBalance Sheet (貸借対照表)P&LStatement of Income / Profit and Loss Statement (損益計算書)Net Assets純資産の部SCNAStatement of Changes in Net Assets (株主資本等変動計算書)SCFStatement of Cash Flows (キャッシュ・フロー計算書)