And the Conflicting Forces that Shape Financial Accounting: An Empirical Analysis
5 The Uncertainty of Future Benefits From R&D Capital – The Case of Capitalized Development Costs According to IAS 38
125 5 The Uncertainty of Future Benefits From R&D Capital – The Case of Capitalized Development Costs According to IAS 38 Applying a sample of 350 firm-year observations from listed German companies for the years 1996-2004 this study empirically investigates the frequently cited argument that R&D capital is too uncertain to be recorded as an asset on the bal- ance sheet. For this purpose I estimate the association of capitalized develop- ment costs according to IAS 38 (R&D capital) with the uncertainty of future benefits. The results suggest that R&D capital according to IAS 38 contributes more to the uncertainty of future benefits than tangible capital. Comparing the uncertainty of future benefits of capitalizers and expensers reveals that recording R&D capital does not contribute to a higher uncertainty of capitalizers relative to expensers for accounting-based measures of uncertainty. A potential explana- tion for this finding may be that despite being a more uncertain asset R&D capi- tal only plays a minor role on the balance sheet of capitalizers and therefore does not contribute to a higher uncertainty of this group relative to expensers. Finally, evidence demonstrates that particularly for stock markets R&D capital seems to be a significant source of uncertainty. Comparing my findings to previous re- search cautiously suggests that R&D investment may have become even more uncertain. 5.1 Introduction and Overview The worldwide adoption of IFRS disseminates the accounting for R&D outlays according to IAS 38. This standard requires all...
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