# ASC 730-20-S99: Research and Development — Research and Development Arrangements — SEC 99 SEC Materials

Source: FASB Accounting Standards Codification, Basic View

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## ASC 730-20-S99: SEC 99 SEC Materials

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#### SEC Staff Guidance

##### [730-20-S99-1](https://asc.understandingaccounting.org/asc/730/20/#730-20-S99-1)

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The following is the text of SAB Topic 5.O, Research and Development Arrangements.

-   Facts: FASB ASC paragraph [730-20-25-5](https://asc.understandingaccounting.org/asc/730/20/#730-20-25-5) (Research and Development Topic) states that conditions other than a written agreement may exist which create a presumption that the enterprise will repay the funds provided by other parties under a research and development arrangement. FASB ASC subparagraph [730-20-25-6(c)](https://asc.understandingaccounting.org/asc/730/20/#730-20-25-6) lists as one of those conditions the existence of a "significant related party relationship" between the enterprise and the parties funding the research and development.
    
-   Question 1: What does the staff consider a "significant related party relationship" as that term is used in FASB ASC subparagraph [730-20-25-6(c)](https://asc.understandingaccounting.org/asc/730/20/#730-20-25-6)?
    
-   Interpretive Response: The staff believes that a significant related party relationship exists when 10 percent or more of the entity providing the funds is owned by related parties. FN14 In unusual circumstances, the staff may also question the appropriateness of treating a research and development arrangement as a contract to perform service for others at the less than 10 percent level. In reviewing these matters the staff will consider, among other factors, the percentage of the funding entity owned by the related parties in relationship to their ownership in and degree of influence or control over the enterprise receiving the funds.
    
    -   FN14 Related parties as used herein are as defined in the FASB ASC Master Glossary.
        
-   Question 2: FASB ASC paragraph [730-20-25-5](https://asc.understandingaccounting.org/asc/730/20/#730-20-25-5) states that the presumption of repayment "can be overcome only by substantial evidence to the contrary." Can the presumption be overcome by evidence that the funding parties were assuming the risk of the research and development activities since they could not reasonably expect the enterprise to have resources to repay the funds based on its current and projected future financial condition?
    
-   Interpretive Response: No. FASB ASC paragraph [730-20-25-3](https://asc.understandingaccounting.org/asc/730/20/#730-20-25-3) specifically indicates that the enterprise "may settle the liability by paying cash, by issuing securities, or by some other means." While the enterprise may not be in a position to pay cash or issue debt, repayment could be accomplished through the issuance of stock or various other means. Therefore, an apparent or projected inability to repay the funds with cash (or debt which would later be paid with cash) does not necessarily demonstrate that the funding parties were accepting the entire risks of the activities.