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Accounting for R&D Investments According to IAS 38

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


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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1 Introduction and Overview


This introductory section provides an overview on the whole thesis. It introduces to the structure of the thesis which is arranged around two research papers. Those papers empirically investigate conflicting views on the accounting treat- ment of internally generated intangible assets through R&D investments as pre- scribed by International Accounting Standard (IAS) No. 38. Additionally, this section elaborates on the relevance of R&D investment in today’s business envi- ronment and the special risk characteristics R&D efforts entail. Further, the pre- vailing national and international rules which determine the accounting treat- ment of R&D activities are summarized to illustrate the important role of IAS 38 within this heterogeneous landscape. 1.1 Introduction and Overview on the Thesis The research papers at the core of the thesis in sections 4 and 5 address two con- flicting perspectives on the accounting treatment of R&D investments according to IAS 38. The discussion on the appropriate accounting treatment of R&D in- vestments primarily revolves around the question if these outlays should be con- sidered as an asset or as an expense (Nixon, 1997, p. 266). The conflicting perspectives addressed in the research papers Proponents of a capitalization of R&D outlays argue that this accounting treat- ment is appropriate to depict the asset-like characteristics of these investments and conveys relevant information about successful R&D projects to investors (Cazavan-Jeny, Jeanjean, & Joos, 2011, p. 4). Consistent with this argument IAS 38 requires a capitalization of certain development outlays from which probable...

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