ASC 730
Definition
The US GAAP standard requiring immediate expensing of research and development costs as incurred. ASC 730 is the structural source of the gap between statutory and capitalisation-reclassified EBITDA for US-headquartered companies: virtually no R&D is permitted on the balance sheet, regardless of stage, evidence quality, or commercial proximity. Narrow exceptions apply for internal-use software (ASC 350-40) and software for sale (ASC 985-20). The 2025 Internal Revenue Code §174A reform restored immediate tax-expensing for domestic R&D after the 2022 capitalisation requirement, but the financial-reporting treatment under ASC 730 remains expense-only. The contrast with IFRS / IAS 38 — which permits capitalisation of development costs once six criteria are met — means the management-accounting reclassification gap is structurally larger for US-reporting companies than for IFRS-reporting equivalents. PE/VC funds underwriting US targets routinely build the proxy capitalisation themselves; founders who arrive with the bridge already documented front-run the markdown logic.
Complementary Terms
Concepts that frequently appear alongside ASC 730 in practice.
An intangible investment — R&D, brand-build, customer-acquisition with proven payback, software development — that has been moved from operating expense to balance-sheet asset and amortised over its useful life under management accounting. Statutory accounting rarely permits the same treatment for internally-generated intangibles: IAS 38 imposes six conservatism criteria that are difficult to meet in practice; ASC 730 forces immediate expensing under US GAAP.
An intangible asset created within the business (R&D output, brand, customer relationships, organisational know-how) rather than acquired through a transaction. IAS 38 conservatism rules make these difficult to capitalise on statutory books — six development-cost capitalisation criteria must all be met.
An analytical framework that decomposes economic or firm-level output growth into contributions from labour, capital, and a residual factor often interpreted as technological progress or total factor productivity. Growth accounting is fundamental to understanding how intangible investments — in R&D, software, organisational design, and human capital — drive productivity improvements.
Tony Hillier's framework for estimating expected EBIT given a company's identified intangible asset base, benchmarked against sector peers with comparable asset profiles. Distinct from Normalised EBIT, which strips one-off items, owner adjustments and non-recurring costs to show the underlying run-rate; Normative EBIT goes further and answers 'what should this business produce given its assets.' The gap between Normative and Actual EBIT is the core analytical output: positive gap (Normative > Actual) means the company is under-exploiting its asset base — upside for a PE acquirer; negative gap means actual performance is unsustainably ahead of the asset base, flagging key-person, market-timing, or contract-pricing risk.
Put this knowledge to work
Use Opagio's free tools to measure and grow the intangible assets that drive your business value.