The accounting treatment of research and development expenditure: views of UK company accountants

Abstract

Although Research and Development and intellectual property are becoming central to the competitive advantage of more companies, the Financial Accounting Standards Board (USA), the Accounting Standards Board (UK) and the International Accounting Standards Committee each prescribe a different treatment for the same development expenditure. This paper is based on the views of senior accountants on the treatment of R&D expenditure in companies that undertake over seventy per cent of UK industry-funded R&D. Most respondents prefer to expense all R&D costs immediately for the theoretically sound reason that the ex ante benefits are too uncertain; by contrast there is a strong consensus that the ex post benefits of R&D expenditure are positive. Two important dimensions of the corporate reporting accountants' perspective emerge: first, disclosure is seen as much more important than the accounting treatment of R&D expenditure and, second, the financial statements are not viewed as the primary channel of communication for information on R&D. These perceptions suggest that UK accounting regulators need to move beyond a focus on the narrow technical issues of R&D in order to consider the role of financial statements in the wider communication process that occurs between companies and accounts users.