General Instructions and Survey Definitions
19. What is research & development (R&D)?
R&D is planned, creative work aimed at discovering new knowledge or developing new or significantly improved goods and services. This includes a) activities aimed at acquiring new knowledge or understanding without specific immediate commercial applications or uses (basic research); b) activities aimed at solving a specific problem or meeting a specific commercial objective (applied research); and c) systematic use of research and practical experience to produce new or significantly improved goods, services, or processes (development). The term research and development does NOT include expenditures for:
- Costs for routine product testing, quality control, and technical services unless they are an integral part of an R&D project
- Market research
- Efficiency surveys or management studies
- Literary, artistic, or historical projects, such as films, music, or books and other publications
- Prospecting or exploration for natural resources
In addition to the above definition, BRDS also references the accounting definition of R&D as defined in Statement of Financial Accounting Standards (SFAS) No. 2--Accounting for Research and Development Costs ( http://www.fasb.org/pdf/fas2.pdf
) or ASC 730. SFAS No. 2 defines R&D as follows:
- For purposes of this Statement, research and development is defined as follows:
- Research is planned search or critical investigation aimed at discovery of new knowledge with the hope that such knowledge will be useful in developing a new product or service (hereinafter "product") or a new process or technique (hereinafter "process") or in bringing about a significant improvement to an existing product or process.
- Development is the translation of research findings or other knowledge into a plan or design for a new product or process or for a significant improvement to an existing product or process whether intended for sale or use. It includes the conceptual formulation, design, and testing of product alternatives, construction of prototypes, and operation of pilot plants. It does not include routine or periodic alterations to existing products, production lines, manufacturing processes, and other on-going operations even though those alterations may represent improvements and it does not include market research or market testing activities.
- The following are examples of activities that typically would be included in research and development in accordance with paragraph 8 (unless conducted for others under a contractual arrangement see paragraph 2)
- Laboratory research aimed at discovery of new knowledge.
- Searching for applications of new research findings or other knowledge.
- Conceptual formulation and design of possible product or process alternatives.
- Testing in search for or evaluation of product or process alternatives.
- Modification of the formulation or design of a product or process.
- Design, construction, and testing of pre-production prototypes and models.
- Design of tools, jigs, molds, and dies involving new technology.
- Design, construction, and operation of a pilot plant that is not of a scale economically feasible to the enterprise for commercial production.
- Engineering activity required to advance the design of a product to the point that it meets specific functional and economic requirements and is ready for manufacture.
- The following are examples of activities that typically would be excluded from research and development in accordance with paragraph 8:
- Engineering follow-through in an early phase of commercial production.
- Quality control during commercial production including routine testing of products.
- Trouble-shooting in connection with break-downs during commercial production.
- Routine, on-going efforts to refine, enrich, or otherwise improve upon the qualities of an existing product.
- Adaptation of an existing capability to a particular requirement or customer's need as part of a continuing commercial activity.
- Seasonal or other periodic design changes to existing products.
- Routine design of tools, jigs, molds, and dies.
- Activity, including design and construction engineering, related to the construction, relocation, rearrangement, or start-up of facilities or equipment other than (1) pilot plants (see paragraph 9(h)) and (2) facilities or equipment whose sole use is for a particular research and development project (see paragraph 11(a)).
- Legal work in connection with patent applications or litigation, and the sale or licensing of patents
R&D may be confused with other activities that are scientific or technological in nature. One way to distinguish R&D from other activities is that R&D involves novelty and the attempt to resolve scientific or technological uncertainty. If the solution to a problem is obvious to someone familiar with the area concerned, then it is not R&D.
This means that many software and website development projects are not R&D. In order for a software development project to be considered R&D, its completion must be dependent on a scientific and/or technological advance and the aim of the project must be to overcome some scientific/technological hurdle. Developing a new website targeted at a specific market would not be considered R&D if it simply applies existing technology and techniques. However, the application of social networking research to develop a novel algorithm could be considered R&D assuming it involves the resolution of some scientific and/or technological hurdles.
In other areas, such as the social sciences, many activities that are commonly called "research" fall outside the definition of R&D because they employ known techniques in a routine manner to gather information. The goal of these activities is not to advance scientific/technological knowledge. For example, conducting a telephone poll of voters to assess opinions about health care legislation is not R&D.
If you are a survey respondent and you are uncertain as to whether your company's activities should be reported as R&D, please contact a BRD survey analyst at 1-800-851-2014 or through secure messaging.
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20. What do I include as "your company" (the reporting unit for this survey)?
The reporting unit for this survey is "your company." .Your company. includes all domestic and foreign subsidiaries for which your company owns more than 50%. Transactions between businesses within your reporting unit should be eliminated as inter-company transactions.
Your company may consolidate entities for which you have less than a 50% ownership stake. To the extent possible, however, please exclude their activities when answering questions about .your company.. You should report transactions with such minority-stake companies as if they were unrelated, third parties.
If you have a foreign owner, its activities should be excluded from your survey answers. Transactions between your reporting unit and the foreign owner should be reported as though your foreign owner were another business.
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21. How should we report inter-company transactions?
When reporting "worldwide" activities, please include domestic and foreign subsidiaries that are more than 50% owned by your company; however, eliminate the inter-company transactions between businesses within this reporting unit. Also, do not include transactions with affiliates for which your company has less than a 50% ownership stake. Also, exclude transactions with your foreign owner, if any.
When reporting on your "domestic" operations, please also include the transactions between one of your domestic businesses and any of your foreign subsidiaries. For example, Question 5 asks you to report worldwide net sales by your company. In this case, sales to foreign subsidiaries would be included. Conversely, you would not report the sales by your foreign subsidiaries in Question 5.
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22. What is a grant?
A grant is a transfer of resources from one institution to another. Payments are received for which no current good or service is provided in exchange from the recipient.
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23. What is a contract?
A contract is a from of procurement where a good or service is provided by the recipient that benefits the funder; the funder specifies the expected outcomes and gains rights to the results.
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