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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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7 Concluding Remarks


Motivated by the growing importance of R&D investment for corporate success and the role of the IAS 38 in unifying and reforming the accounting treatment of these investments, this thesis investigated two conflicting perspectives on the accounting treatment of R&D outlays. On the one hand, a capitalization of R&D outlays is argued to reduce information asymmetries about the success potential of these investments and hence provides relevant information for capital mar- kets. On the other hand, opponents of such a capitalization claim that due to the high uncertainty of future benefits from R&D efforts an asset-like treatment of these investments is inappropriate. Hence, those opponents require all R&D in- vestments to be expensed as incurred. This debate is in the spirit of the trade-off between relevance and reliability. This trade-off is of particular importance when taking the differing perspectives of equity and debt investors as the major capital providers of any firm. This is because debt investors are more vulnerable against uncertainty and therefore require a lower degree of uncertainty from in- formation to be reliable. Reviewing related literature points out that previous research primarily fo- cused on either aspects of relevance or reliability related to the accounting treatment of R&D outlays. Therefore, the thesis contributes to existing literature by studying both aspects in context with the accounting treatment of R&D out- lays. Additionally, the thesis adds to the scare empirical evidence on IAS 38. Given the growing importance of IFRS and the...

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