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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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3 Research Question and Methodology


Section 3 develops the research question of the thesis and further introduces to the methodological fundamentals required to empirically investigate this re- search question. The thesis as a whole is motivated by investigating the question if measures of R&D capital according to IAS 38 (1) provide relevant informa- tion for equity markets, at the same time, however, (2) involve only an accepta- ble degree of uncertainty. This investigation is in the spirit of the trade-off be- tween relevance and reliability of financial accounting information. As elabo- rated in section 2 on related literature, section 4 of the thesis contributes to value relevance literature and section 5 to the literature on the uncertainty of future benefits from R&D. Therefore, section 3.2 introduces to the methodological background of value relevance literature as well as of the literature on the uncer- tainty of future benefits from R&D. 3.1 Research Question This section develops the research question of the thesis. As elaborated in sec- tion 2.3 the thesis contributes to existing literature by investigating the impact of the accounting treatment of R&D outlays according to IAS 38 on aspects of re- levance as well as aspects of reliability. The differing information needs of equi- ty and debt investors add further complexity to the trade-off between relevance and reliability. This is because both groups interpret relevance and reliability differently due to their differing information needs. Therefore, this section starts with a brief explanation of the information needs of equity and debt...

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