Journal of Accounting Research Vol. 40 No. 3 2002
R&D Accounting and the Tradeoff Between Relevance and Objectivity
open access
Abstract
We use a simulation model for a pharmaceutical R&D program to examine the tradeoff between objectivity and relevance of accounting information under various methods of R&D reporting. A simple capitalization rule, similar to the successful‐efforts method of capitalizing oil and gas exploration costs, provides a stronger relation between accounting information and economic values than immediate expensing of R&D outlays or capitalizing the full cost of outlays. The superior relevance of this “successful‐efforts” method persists even when earnings management is widespread.
- DOI
- 10.1111/1475-679x.00067
- Volume
- 40
- Issue
- 3
- Pages
- 677-710
- Language
- en
- Sources
- openalex bibtex:phds-export.bib crossref