Internal R&D Expense — Drug Discovery & Development
Recording the monthly R&D expenses for internal drug discovery and development programmes.
| Account Name | Type | Debit ($) | Credit ($) |
|---|---|---|---|
| Research & Development Expense | Expense (+) | 12,500,000.00 | - |
| Accounts Payable / Accrued Liabilities | Liability (+) | - | 12,500,000.00 |
💡 Accountant's Note
Under IAS 38 / IFRS, pharmaceutical research costs are always expensed. Development costs can theoretically be capitalised once technical feasibility is established, but in practice the vast majority of pharma companies expense all pre-approval R&D given the regulatory uncertainty — even late-stage Phase III candidates have significant failure risk.
Practitioner & Systems Framework
💻 ERP Architecture
R&D costs are tracked by project code or WBS element in the ERP. Internal R&D includes scientist salaries, lab consumables, equipment depreciation, and allocated facilities costs. External R&D includes CRO (Contract Research Organisation) fees, clinical site payments, investigator grants, and biomarker testing. Programme-level R&D spend tracking is critical for portfolio management decisions. The R&D cost centre hierarchy in SAP or Oracle maps to the drug pipeline (discovery → preclinical → Phase I → Phase II → Phase III → NDA/BLA submission). Headcount allocation to projects is tracked through time-recording systems for grant accounting and portfolio reporting.
⚠️ Audit Flags
Auditors test the R&D vs. COGS and capex classification of expenditures — manufacturing scale-up costs, process development, and process validation activities sit at the boundary between R&D and manufacturing. Test that pre-approval manufacturing costs are not capitalised as inventory. Confirm that the IAS 38 development cost capitalisation criteria are evaluated and that any capitalisation decisions are rigorously supported (most pharma companies elect to expense all development costs). Review allocation of shared costs between R&D and commercial functions (sales, medical affairs).
📄 Required Documentation
R&D project code register, scientist timesheets (for salary allocation), CRO master service agreements and work orders, programme-level spend report vs. budget, IAS 38 capitalisation assessment (research vs. development phase), shared cost allocation methodology, and R&D tax credit calculation (if applicable).
Professional Excel Template
Get the automated version of this entry. Includes built-in IFRS checks, VAT calculators, and SAP-ready upload formats.
Expert Analysis by Qusai Ahmad
General Accountant Supervisor & IFRS Specialist
Specialized in SAP GUI automation and Middle Eastern tax compliance. Building digital tools for the next generation of finance leaders.