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Accounting for R&D Investments According to IAS 38

And the Conflicting Forces that Shape Financial Accounting: An Empirical Analysis

Series:

Michael Ordosch

The thesis empirically investigates two conflicting views on the accounting treatment of R&D outlays according to IAS 38. Proponents of a capitalization of R&D outlays argue that this accounting policy provides relevant information to investors. In contrast, those opposing such a capitalization state that the resulting asset is too uncertain. The findings demonstrate that the arguments of both supporters and opponents basically remain valid and are therefore to some extent incompatible. However, given this incompatibility a discussion of the empirical findings in context with the arguments brought forward within the political debate surrounding IAS 38 illustrates that IAS 38 eventually pursues a reasonable approach to balance these conflicting views.

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Figure 1: Structure of the Thesis ...................................................................... 8 Figure 2: The Gap Between Accounting Book Value and Market Value of Equity .......................................................................................... 11 Figure 3: Categorization of the Intangible Value Drivers Generated by R&D Investment Into Primary Management Tools................... 13 Figure 4: Distribution of Returns From Intangible Versus Tangible Investment ....................................................................................... 14 Figure 5: Accounting for R&D Outlays in Selected Regulatory Backgrounds.................................................................................... 18 Figure 6: Overview on Related Literature ...................................................... 35 Figure 7: Payoffs to Capital Providers as a Function of Corporate Performance .................................................................................... 40 Figure 8: Empirical Financial Accounting Research ..................................... 48 Figure 9: Methodologies in Empirical Financial Accounting Research ........ 49 Figure 10: Price Versus Return Models When Prices Lead Earnings ............. 76 Figure 11: The Effects of R&D Investment on Equity Investors’ Claims ..... 130 Figure 12: The Effects of R&D Investment on Debt Investors’ Claims ........ 131

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