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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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Table 1: Hypothetical Corporate Performance Excluding the Effect of Project P .......................................................................................... 42 Table 2: Corporate Performance Under Full Capitalization of R&D Project P .......................................................................................... 43 Table 3: Corporate Performance Under Full Expensing of R&D Project P . 44 Table 4: Corporate Performance Under Accounting for R&D According to IAS 38 ......................................................................................... 46 Table 5: Observations by Year (Value Relevance Study) ............................ 98 Table 6: Observations by Industry (Value Relevance Study) ....................... 98 Table 7: Descriptive Statistics (Value Relevance Study) ........................... 100 Table 8: Estimation Results for Equations (4.1) and (4.2) ......................... 103 Table 9: Descriptive Statistics for Alternative Proxies to Identify Settings That Differ With Respect to Suspected Earnings Management and/or Uncertainty ........................................................................ 109 Table 10: Composition of the Various Sub-samples With Respect to the Other Differentiating Variables .......................................... 111 Table 11: Sensitivity of the Value Relevance of Capitalized Development Costs With Respect to Suspected Earnings Management and Uncertainty of Future Benefits ..................................................... 114 Table 12: Observations by Year (Uncertainty Study) ................................... 140 Table 13: Observations by Industry (Uncertainty Study) ............................. 141 Table 14: Descriptive Statistics (Uncertainty Study) .................................... 143 Table 15: Relative Assessment if Capitalizers Experience a Higher Uncertainty of Future Benefits due to the Fact That They Record R&D Capital ..................................................................... 146 Table 16: Relative Assessment if R&D Capital is Associated With More Uncertainty Than Tangible Capital Measured by PPE ................. 150 Table 17: Relative Assessment if Capitalizers Experience a Higher Uncertainty of Future Benefits due to the Fact That They Record R&D Capital for Extended Sample II Excluding Extreme Observations.................................................................................. 155 XVI Table 18: Relative Assessment...

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