A New Perspective on R&D Accounting
A New Perspective on R&D Accounting
dc.contributor.author | King, Zachary | |
dc.date.accessioned | 2021-11-12T18:52:15Z | |
dc.date.available | 2021-11-12T18:52:15Z | |
dc.date.issued | 2021 | |
dc.description.abstract | U.S. GAAP generally requires firms to expense R&D outlays as incurred, a requirement that many prominent stakeholders view as deficient in reflecting the value of a firm’s R&D program. Prior academic research supports this view by applying a theory for tangible capital to the issue of R&D accounting. However, tangible capital is modeled in this theory as an item that can be used immediately to generate revenues with no uncertainty. Different from tangible capital, many R&D investments can be described as uncertain multi-period ventures in which measurable progress can be made each period, but revenues can only be generated in future periods after the venture is successfully completed. I apply and extend an alternative theory that models this well documented and uncertain time lag between R&D cash outflows and inflows. Theoretical analyses predict that R&D expensing results in more value relevant accounting numbers than R&D capitalization and amortization. Empirical tests confirm these predictions in a sample of R&D intensive firms, suggesting that current accounting reflects the value of a firm’s R&D program better than R&D capitalization and amortization. This research is timely because many prominent stakeholders believe the opposite, and such beliefs have motivated the FASB to consider changing U.S. GAAP in recent years. | |
dc.identifier.uri | http://hdl.handle.net/10125/77036 | |
dc.subject | Accounting policy | |
dc.subject | accounting standards | |
dc.subject | dynamic R&D investment | |
dc.subject | standard setting | |
dc.title | A New Perspective on R&D Accounting | |
dc.type.dcmi | Text |
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