Category Archives: Business

Business, Finance, Politics

Power Broker by Robert Caro – Summary & Analysis of Chapter 2

Leave a comment

Chapter 2 – Robert Moses at Yale

Considered a “Jew” by his classmates at Yale. Known internally as “a democracy of talent”, the structure of Yale was in fact a social pyramid based on family background and closed to Jews. Moses roomed alone, seen as “diffident, quiet and shy” by his classmates but as exceptional by his few friends with a great love of learning. Joined editorial board of the Yale Daily News and joined the swimming team. Moses broadened his acquaintances through these two groups. He travelled Europe extensively, enthusiastically visiting the great museums and galleries and developed a great enthusiasm for Samuel Johnson.

Back at Yale, Moses attempted to democratize the structure and to improve the status of sports such as swimming, using the Yale Daily News to promote his views. He persuaded the minor sports to combine into a formal association for funding. On June 11, 1908, Moses announced the formation of the Minor Sports Association.

Moses resigned from the swimming team when he couldn’t get his way on funding. He became more active in literary circles. His academic work continued to be outstanding. In his last two years he had roommates, members of literary groups KitKat and The Current. He became liked by his circle of friends.

Moses’s idealism strengthened through the years. He was known as intense in argument but honest, speaking from the heart. Moses did not achieve a membership of any of the important Yale societies, but his achievement was impressive for a Jew achieving a certain amount of power and influence. He had managed to build a coterie of followers within the structure with himself at the head. This was to influence his progress in the wider world thereafter.

Analysis & Key Takeaways: Chapter 2 of Power Broker
  • Anyone who has been in student politics will recognize the low stakes, high pettiness of student politics. Robert Moses organized student minor sports leagues for fundraising purposes. He wants to bring all the clubs together as a kind of unionized entity in order to gain funding leverage. He also wanted to fudge the finances to advance his singular sport of choice: swimming. Of course, distributing the funds would be how he could funnel more to his sport then the more popular sports. When his ideas were rejected, he cut out friends that opposed him. He figured out early that money is power.
  • Networks matter and so do cultural groups. Religion (cultural group marker) is a foot in the door in some cases and a means of exclusion in others. The fact that shared experiences create alliances is not going to disappear anytime soon because the human brain is wired to prefer things that are similar: example Movie Sequels….it’s not that we have to like the human brain, to acknowledge these patterns;
  • Is Robert Caro building up Robert Moses in this chapter? Do people have an honest recollection of a person after that person becomes influential in wider society? Or do recollections warp, inserting false memories? Moses sounds like a superstar or at least an overachiever, CV stuffer;
  • Resign if you can’t get your way. This mantra is something Moses threatens to do a lot throughout his career, figure out where you stand and then threaten to resign as a bargaining chip, but only if you are confident that ‘they’ need you.
The Power Broker is a Pulitzer Prize Winner
Chapter 1Chapter 2Chapter 3
Chapter 4Chapter 5Chapter 6
Chapter 7Chapter 8Chapter 9
Chapter 10Chapter 11Chapter 12
Chapter 13Chapter 14Chapter 15
Chapter 16Chapter 17Chapter 18
Chapter 19Chapter 20Chapter 21
Chapter 22Chapter 23Chapter 24
Chapter 25Chapter 26Chapter 27
Chapter 28Chapter 29Chapter 30
Chapter 31Chapter 32Chapter 33
Chapter 35Chapter 36Chapter 37
Chapter 38Chapter 39Chapter 40
Chapter 41Chapter 42Chapter 43
Chapter 44Chapter 45Chapter 46
Chapter 47Chapter 48Chapter 49
Chapter 50
Business, Finance, Politics

Power Broker by Robert Caro – Summary & Analysis of Chapter 18

Leave a comment

Chapter 18 – New York City before Robert Moses

Nowhere had the Great Depression hit harder than in New York City. More than one person in every three had lost their jobs. The rest were often paid a fraction of their former salaries. Malnutrition was rife. Children missed out of education. There was fear and terror of the future.

Tammany corruption within the city was endemic. Federal relief payments were being syphoned off. The test for employment was politics rather than need. By 1932, New York’s debts were over $1 billion, equal to the debt of all the other states combined. The reckoning for Tammany rule had arrived.

The city’s failures were not entirely due to the Depression. They were also caused by under-investment in crucial infrastructure. Corrupt employment practices had resulted in a lack of qualified technical staff. Public works were either lacking or substandard. The development of parks and parkways driven by Moses stood out even more starkly as an example of what could be done. Road connections, both by bridge and tunnel, between Manhattan and the mainland were seriously inadequate. New York City, in terms of the state of its parks, playgrounds, statues and other public provisions, was a crumbling disgrace.

Central Park was a good indication of the demise of the city. The idealist construction of the 19th Century had been destroyed by the Tammany governance.  The zoo there stank from neglect, the animals either sick or malformed.

The city was surrounded by beaches, but their use by Tammany insiders restricted the general public to severe limitations. The beaches that were available were inhabited by lifeguards who couldn’t swim, or homeless people’s makeshift shacks.

During the Depression the parks started to fill with shack towns or “Hoovervilles.” There was a tremendous strain on housing and the slums were overflowing, with barely an acre of green space to provide relief. In 1932 there was only one playground for every 14,000 children. This did not prevent the construction of a casino in Central Park, at vast expense, by Mayor Jimmy Walker, who proceeded to use it as his own personal domain; somewhere to wine and dine his cronies.

Moses had other things on his mind, namely, the construction of metropolitan parks and parkways, the Triborough Bridge, the Brooklyn Bridge and connecting roads to alleviate the city’s traffic problems. Moses was planning to connect Manhattan with the northern states, Long Island and New Jersey. It was the most ambitious city development plan in the world. But was it achievable?

Moses persuaded Roosevelt to allocate funds as part of the State Budget. The rest of the money however, was to come from the city. Roosevelt’s successor, Herbert Lehman, was a champion for Moses and set up a special commission with Moses as chairman to start the development. Some of the initial funds were syphoned off for other purposes and it was a struggle for Moses to persuade the funders. New York City meanwhile, was unable to pay its employees and was close to being declared bankrupt. However, in the summer of 1933, Moses was to bring fresh hope to his plans by running for Mayor.

Analysis & Key Takeaways
  • The bridge is power, it’s the layers, public relations, and banks. Moses used the power of the bridge in order to leverage towards other projects;
  • Any jurisdiction runs the risk of being mismanaged when the same people get re-elected time after time; it goes from democracy to kleptocracy rather rapidly. Mismanaging funds is often the act of screwing the future to help the present (since we don’t know what the future may hold).
The Power Broker is a Pulitzer Prize Winner
Chapter 1Chapter 2Chapter 3
Chapter 4Chapter 5Chapter 6
Chapter 7Chapter 8Chapter 9
Chapter 10Chapter 11Chapter 12
Chapter 13Chapter 14Chapter 15
Chapter 16Chapter 17Chapter 18
Chapter 19Chapter 20Chapter 21
Chapter 22Chapter 23Chapter 24
Chapter 25Chapter 26Chapter 27
Chapter 28Chapter 29Chapter 30
Chapter 31Chapter 32Chapter 33
Chapter 35Chapter 36Chapter 37
Chapter 38Chapter 39Chapter 40
Chapter 41Chapter 42Chapter 43
Chapter 44Chapter 45Chapter 46
Chapter 47Chapter 48Chapter 49
Chapter 50
Business, Politics

Robert Moses | The Power Broker | Notes On An Epic Pulitzer Prize Winning Book

Leave a comment
The Power Broker is a Pulitzer Prize Winner
Robert Caro, 1990

  • Robert A. Caro’s The Power Broker is a Pulitzer Prize winning epic that was widely read by the politicians and civil servants in the US and abroad;
  • The keypoints are my interpretation of the events in the corresponding chapter; take with a grain of salt;
  • My opinions are subject to change at any future date as an intellectually free person; so if new information shows Moses to be even more “impure” I am free to change my opinion without judgement, thanks!;
  • Writing about Moses does not equal endorsing Moses obviously;
  • This article is my attempt to provide a chapter-ized summary so that you don’t have to read this 1255 pager. The physical book weighs a lot, too, as is Robert Caro’s way. Enjoy; 

Hero, Villain or Mixture of the Two? Probably a Mixture. He is both repugnant and visionary. Hate-able and laudable for “getting things done.” Moses famously responded to this Caro book by saying a) he wasn’t responsible for public transport (read: probably not of interest fee-wise), b) he wasn’t that powerful, c) Moses never addresses the racism he is accused of peddling…can we separate the progress from the possibly very repugnant man?

Part One – The Idealist

Chapter 1 – Line of succession

Robert Moses was born on December 18th, 1888. His mother Bella was the strong willed, daughter of Bernard and Rosalie Cohen. Bernard was among many German Jews who longed to escape repression and emigrate to the USA. Eventually he settled with his brother in New York and marrying his cousin, Rosalie Silverman. Bernard became interested in civic affairs. And became known as a decisive and visionary analyst of social problems. Rosalie Silverman bullied her husband. She was intellectual rather than maternal and as Granny Cohen was imperious, treating other people as underlings.

Bernard died in 1897 of pneumonia. Rosalie carried on energetically, marching around New York and dismissive of the soft life. In 1919 she calmly finished her crossword puzzle, got out of bed and rang the bell to summon her maid before calmly announcing “Martha, summon Doctor –, I’m dying”.

Bella, quiet and unassuming but thoughtful, spoke French and German fluently and retained the sharpness of her mother. In 1886 she married Emanuel Moses, a Jew from Cologne. Although he built a successful business, Bella was thought to have “married beneath her.” They settled in Dwight Street, New Haven, Connecticut, an elm lined street with substantial houses.

Bella disliked the lack of cultural activity in New Haven so eventually they moved to New York in 1897.

By 1907, 1 million Jews had fled to the USA to escape persecution. By 1917 this was 1.5 million. In the Lower East Side, settlement houses sprang up to cope with the influx, and Bella became involved. There was a certain snobbery exercised by the settled Jewish community towards new Jewish immigrants, many from Russia. They called them “Kikes” because of the endings of many Russian surnames. German Jews had a patronising attitude to the new influx of Jews from Eastern Europe. Bella’s attitude towards those under her wing were thought to be “You’re my children, I know best.”

Bella however, was more interested in urban planning than integration. Her proposals were well mannered but steely. She was known for getting her way. Once she became involved in a project, she became obsessed with the detail. Bella could always count on Emmanuel’s support, at work and in the home, an obvious parallel with her own parents. Bella was not religious, and although Emanuel was attached to the synagogue, her views prevailed.

In New York the family lived just off 5th Avenue; a large oak panelled brownstone at the centre of a rich Jewish sector. With assets of $1.2M and walls covered with Rembrandt and Durer prints, they were among the elite.

Bella was strict with children, organising their lives in minute detail. She was particularly interested in their education. All the children were sent to expensive schools, Robert eventually ending up at Yale.

Bella’s sons, Paul and Robert, were often mistaken as twins. Both were considered “stunningly” handsome but haughty, even arrogant. They were popular with both girls and boys. Although both were considered athletes, Robert was more of a loner, attracted to sports, but not team sports.

Both brothers were dismissive of their father but Robert and his mother formed an inner circle. Bella catered to Robert’s every whim, “doting” on him. Robert flattered his mother by praising her work in the community and mimicking her movements and deportment. The line of personality was clear: from Robert’s grandmother, to his mother, to him.

Analysis & Key Takeaways:
  • Robert Moses’ personality was shaped by the powerful women in his early life, women who had steely determination past down generation to generation;
  • Forming alliances can start at the Family level between siblings. Healthy competition is important, parents are people too and so they can and sometimes outwardly express their preferred child;
  • The instinct to know better than others is not without merit. However, it is difficult to evaluate the merit of ones ideas in isolation especially if the idea is based on a track-record, pattern recognition etc. Ironically, we are the worst evaluators of our own instincts (Dunning Kruger effect) which creates arrogance in some cases and brilliance in others. A way to check your instincts is to evaluate your predictions against the reality, however prediction is very luck based;
  • Loners seem to operate and run things; it’s lonely at the top therefore loners are predisposed to move to the top;
  • Everyone has a personal religious perspective, sometimes religion defines ones identity, other times it’s a footnote and other times a hindrance.
The Power Broker is a Pulitzer Prize Winner
Chapter 1Chapter 2Chapter 3
Chapter 4Chapter 5Chapter 6
Chapter 7Chapter 8Chapter 9
Chapter 10Chapter 11Chapter 12
Chapter 13Chapter 14Chapter 15
Chapter 16Chapter 17Chapter 18
Chapter 19Chapter 20Chapter 21
Chapter 22Chapter 23Chapter 24
Chapter 25Chapter 26Chapter 27
Chapter 28Chapter 29Chapter 30
Chapter 31Chapter 32Chapter 33
Chapter 35Chapter 36Chapter 37
Chapter 38Chapter 39Chapter 40
Chapter 41Chapter 42Chapter 43
Chapter 44Chapter 45Chapter 46
Chapter 47Chapter 48Chapter 49
Chapter 50
Business, Politics

Running a Company from the Financial Perspective | Accounting Analysis

Leave a comment

Accrual Accounting versus Cash Accounting

Accrual basis = immediate recognition.

Cash basis = when the case is received.

Before we dive into earnings management as a subtopic within business analysis and valuation, it is helpful to understand the difference between Accrual and Cash Accounting. The cash basis is only available for use for companies has no more than $5 million sales per year.

The accrual basis is used by larger companies because matching revenue and expenses in the same reporting period so that the true profitability of an organization can be discerned.

Cashflows are harder to manipulate. The big difference between the two is when the transactions are recorded.

Cash basis: Revenue is recorded when cash is received from customers, and expenses are recorded when cash is paid to suppliers and employees.

Accrual basis: Revenue is recorded when earned and expenses are recorded when consumed.

Revenue recognition is delayed under the cash basis until customer payments arrive at the company. Similarly, recognition of expenses are paid under the cash basis until such time as supplier invoices are paid.

Revenue recognition: a company sells $10K of green widgets to a customer in March which pays the invoice in April. Under the cash basis, the seller recognizes the sale in April, when the cash is received. Under the accrual basis, the seller recognizes the sale in March, when it issues the invoice.

Expenses recognition: a company buys $500 of office supplies in May, which it pays for in June. Under the cash basis, the buyer recognizes the purchase in June, when it pays the bill. Under accrual basis, the buyer recognizes the purchase in May, when it receives the supplier’s invoice.

Creating Cookie Jars: by deferring revenue that was genuinely earned or by taking additional expense by taking on excessive reserves for bad debts (we’ll explore this in a future post)

Debt Covenants: Keeping ratios within certain ranges. Debt/Equity. Lender have a capped upside. So lenders like covenants; What if you are ear to violating your covenant? Then you might adjust the bonus threshold.

Opacity of the Firm: capital markets & stakeholders. Competitive consideration: opaque firms will use the argument that they can’t divulge financial statement performance to the same degree as other firms because of their competitors.

You have to sit in awe of the most in genius management invention of all: Plausible Deniability! 

STEP 2: ACCOUNTING ANALYSIS:

How to adjust financial statements for distortions?

How firms communicate with financial statements and how regulations and managerial discretion affect statements for distortions. There are several steps to Accounting Analysis:

Step 1: Identify Principal Accounting Policies:

Key policies and estimates used to measure risks and critical factors for success must be identified. IFRS require firms to identity critical accounting estimates. For example banks issue credit risk and interest rate risk. For airlines, depreciation is important because their biggest asset are the planes themselves. Therefore, for airlines, depreciation is a critical accounting policy. It is also where the accounting manipulation can occur.

Step 2: Assess Accounting Flexibility

Accounting information is less likely to yield insights about a firm’s economics if managers have a high degree of flexibility in choosing policies and estimates. If the firm is using GAAP accounting; there is limited flexibility for example look at how restrictive R&D and Marketing cost are under GAAP. How much of the flexibility has management already used? For other areas under GAAP, there is a lot of flexibility for example credit risk. Is the company being aggressive or conservative? A firm that is conservative now has the potential to be aggressive.

Step 3: Evaluate Accounting Strategy

Flexibility in accounting choices allows managers to strategically communicate economic information or hide true performance. How has their accounting differed from competitors? Are the accounting strategies changing regularly; think of CGIs accounting policy changes in the last decade. Does the firm have realistic assumptions in the past.

Issues to consider include:

  • Norms for accounting policies with industry peers
  • Incentives for managers to manage earnings
  • Changes in policies and estimates and the rationale for doing so
  • Whether transactions are structured to achieve certain accounting objectives.

Step 4: Evaluate the Quality of Disclosure

Managers have considerable discretion in disclosing certain accounting information. Is the firm providing adequate information about their strategy and explain the economics of its operations? Are those accounting policies justified adequately? Is the firm providing equally helpful disclosures in bad times? Firms that are more transparent are potentially far less likely to conduct earnings management.

Issues to consider include:

  • Whether disclosures seem adequate;
  • Adequacy of notes to the financial statements
  • Whether the management report section sufficiently explains and is consistent with current performance
  • Whether accounting standards restrict the appropriate measurement of key measures of success

Step 5: Identify Potential Red Flags

Unexplained transactions that boost profits. Here are a few examples.

  • Unusual increase in inventory or A/R in relation to sales
  • Increases in the gap between net profit and cash flows or tax profit
  • Use of R&D partnerships, SPEs or the sale of receivables to finance operations
  • Increasing Gap between Net Income and Cash Flow from Operations: firm may be fiddling with accruals.
  • Unexpected large asset write-offs (suddenly just write something off)
  • Large year-end adjustments
  • Qualified audit opinions or auditor changes
  • Related-party transactions (Valeant and Philidor)

Maybe we should list MORE!!!!…..

Red Flags in Accounting used for Earnings Management by (some) CEOs and CFOs Today

Note that Earnings Management is not illegal in some cases, in fact, it’s a strategy used by many companies believe it or not. Just like a Prime Minister who announces a snap election, a CEO can engage in earnings management (the manipulation of Financial Statements) behind a wall garden that only he or she and their team is privy to…..The following at POSSIBLE red flags, it’s hard to tell in reality, but here are things to look for with publicly traded companies:

Income smoothing: Companies love steady trends in profits, rather than wild changes in profits  No kidding! Income smoothing techniques (i.e. declaring high provisions or maybe deferring income recognition in good time) led to lower wild changed in reported earnings. Items to look out for is a pattern of reporting unusual losses in good operating years and unusual gains in bad ones.

Achieving forecasts: Is there a pattern of always meeting analysts’ earnings forecasts, an absence of profit warnings, or interim financial statements consistently out of line with year-end statements? Is a company making changes in accounting policies that revise profits upwards in years when underlying earnings have fallen, and vice-versa? Could be a redflag!

Profit enhancement: Current year earnings are boosted to enhance the short-term perception of performance which is what shareholders and analysts crave!

Accounting-based contracts: When accounting-based contracts are in place such as loan covenants, any accounting policy that triggers a shortcoming can circumvent the debt covenants….

Gap between earnings and Cash flows: Is there a large gap between earnings and cash flows? Is that gap increasing? If so there may be poor accruals.

Reported income and taxable income: Is reported income vastly different from taxable income, with no explanation or disclosure? That’s a problem.

Ratios: Do obsolescence analyses reveal old inventories or receivables, declining gross margins but increasing net margins, inventories/receivables increasing more than sales, or more leverage ratios?

Unusual financial statement trends: What is the relationship between revenue and (earnings per share) EPS growth? Is there a weird pattern of year-end transactions? What is the timing and recognition of exceptional items? What is the relationship between provisions for bad accounts and profits? It’s within a CEOs discretion due to asymetric information.

Accounting policies: Have there been recent changes in accounting policies, such as off-balance sheet financing, revenue recognition or expense capitalization? Furthermore, have the nature, purpose and effect of any changes been adequately explained?

Incentives for management: Are there incentives for managers to boost short-term profit to increase compensation (i.e. bonuses based on EPS and share option plans).

Audit qualifications: Are any auditors’ adjustments outlined in an audit report significant?

Related party transactions: Are these material and to what extent are directors affected

Manipulation of Reserves: Has there been under-provisioning in poor years, over-provisioning in good year, a manipulation of reserves, aggressive capitalization of costs, overly optimistic asset lives, accelerating expenses and increased write-downs in good years, and exceptional gains timed to offset exceptional losses?

Revenue recognition: Has there been a premature recording of revenues, recognizing sales prior to physical movement of goods, recognizing service revenue from service contracts prior to service being performed, upfront recognition of sales that should be spread over multiple periods, percentage of completion estimates out of line with industry norms?

Transaction timing: On the revenue side, have deliveries been sped up near the year end? On the cost side, have discretionary expenditures, such as maintenance and R&D, been delayed to future periods?

Regulated industries: Is there a pattern of engaging in accounting practices whose principal purpose is to influence regulatory decisions (i.e. lowering reported profits where the perception of excessive profits could prompt unfavorable regulatory action)?

Internal accounting: In a multi-division company there may be incentives to shift profits to divisions (or subsidiaries in relatively low tax jurisdictions) to reduce the overall tax burden.

Commercial pressures: In the anticipation of mergers, takeover bids or IPOs, there could be pressure to create a favorable perception by, for example, lowering credit standards to temporarily boost sales OR pumping up the value of the company at the risk of harming long-term customer relationships.

Other: When a company has foreign operations and is re-translating overseas subsidiaries’ results, a functional currency is determined for each entity. However, has the company taken advantage of ambiguous situations or facts, manipulating the selection to generate favorable currency gains or minimize currency losses? Has a company allocated joint costs among long-term contracts to create the appearance that no contract has produced losses, thereby avoiding an immediate loss provision?

The existence of these potential red flags do not indicate anything wrong per se, but should lead a prudent analyst to undertake diligent investigations to see if they are justified by company-specific factors. If distortions do exist, an analyst should, to the extent possible, undo the distortions to better evaluate a company’s financial performance within a historical and competitive context.

Step 6: Undo Accounting Distortions

  • Taxable income
  • Cash flow statement information
  • Management Guidance: no one is forcing management guidance, except management themselves.  What MG is specifically, is when a C-suite manager provides insight into the company to investors or analysts. If you are close to the target. I’d like to get that bump rather have a small loss. You want to cross the Threshold of Zero.

Elon Musk: Leaked Email in August 2016

So if you Tweet the kind of things that provoke strong reactions, that are basically the standard musings I might have made as teenager, you probably have no problem manipulating financial analysts! Expectation management is a tactic that Musk and other CEOs will leverage when the short-term performance for what is a long-term Bezos-style play (Tesla) . Elon Musk (graduated of Queen’s University in Kingston, Canada and whose mother is a Saskatchewanian) is of course a bat-shit crazy badass. In August of 2016, he was saying his Tesla Q4 expenditure will be huge, in the run up to new production line, so he’s providing a small negative estimate of profitability to his own employees and then intentionally leaking the email to the press to get the word out to financial analysts. Leaks in politics = leaks in business.

“Here’s the full text that Bloomberg has published:

I thought it was important to write you a note directly to let you know how critical this quarter is. The third quarter will be our last chance to show investors that Tesla can be at least slightly positive cash flow and profitable before the Model 3 reaches full production. Once we get to Q4, Model 3 capital expenditures force us into a negative position until Model 3 reaches full production. That won’t be until late next year.

We are on the razor’s edge of achieving a good Q3, but it requires building and delivering every car we possibly can, while simultaneously trimming any cost that isn’t critical, at least for the next 4.5 weeks. Right now, we are tracking to be a few percentage points negative on cash flow and GAAP profitability, but this is a small number, so I’m confident that we can rally hard and push the results into positive territory. It would be awesome to throw a pie in the face of all the naysayers on Wall Street who keep insisting that Tesla will always be a money-loser!

Even more important, we will need to raise additional cash in Q4 to complete the Model 3 vehicle factory and the Gigafactory. The simple reality of it is that we will be in a far better position to convince potential investors to bet on us if the headline is not “Tesla Loses Money Again”, but rather “Tesla Defies All Expectations and Achieves Profitability”. That would be amazing!

Thanks for all your effort. Looking forward to celebrating with you,

Elon”

“Gap in profitability” So he can’t miss this target badly. In the end, he sold a large build up of environmental credits: so that they could hit Tesla’s target thus satisfying the analysts who wanted to short the stock.

  • Dead giveaways that this is for analysts? Um, technical language that his employees without financial training might not dig.
  • Also, just being a total douche communicator because he probably doesn’t like analysts.

https://cleantechnica.com/2016/09/07/tesla-ceo-elon-musks-august-29-email-employees-calls-3rd-quarter-rally-profitability-full-email-text/

Research & Development GAAP versus IFRS

As a side note: Under IFRS, R&D is significantly more complex. Under US GAAP you will have your R&D costs expense as they are incurred.  Under IFRS, research costs are expense but IFRS has broad-based guidance which require companies to capitalize development expenditures, for internal costs, when certain criteria is met. In IFRS, intangible assets are capitalized and amortized under IFRS but expense under US GAAP. Therefore, this difference means that for IFRS; you need to distinguish research activities with development activities.

Research costs are costs created to plan an investigation or undertake research with the aim of gainin new scientific or technical knowledge. Example, search activities for alternatives for concrete rail ties.

Development costs are incurred in the application of the research findings or knowledge to plan or design for the production of new or substantially improved products before the start of commercial production. Example, testing a new smart phone OS to replace the current OS.

Under IFRS, here was when you would start to capitalize development phase of a project. When it is technically feasible to complete the intangible asset so that it will be available for sale. Its intention to complete the intangible asset and use it is another trigger.