iRobot Corporations Intellectual Property: Accounting For Research And Development Under U.S. GAAP Versus IFRS

Abstract

Founded by MIT scientists in 1990, iRobot Corporation designed, developed, and sold consumer and military robots to help people complete dull, dirty or dangerous tasks in real-world situations. The purpose of this case study is to stimulate discussion about intellectual property and how it should be measured and reported. Under U.S. generally accepted accounting principles (GAAP), iRobot reported no asset related to their internally generated intellectual property despite over 20 years of intensive research in robotics. In contrast, international financial reporting standards (IFRS) permitted firms to treat certain research and development (R&D) activities as an asset. By comparing U.S. GAAP and IFRS treatments of R&D, we provide an interesting example of the range of potential financial reporting effects across alternative accounting methods. Further, the case requires that students wrestle with the implications of moving from more rule-based accounting (U.S. GAAP) to more principles-based accounting (IFRS). How might U.S. managers, auditors, and investors likely respond? A teaching note is available.