The Use Of R & D Expenditure

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The conservative desire by many is for no capitalisation of any element of R&D expenditure but rather the immediate expensing. This is believed to provide a clearer and more useful report on the operations of the company in addition to reinsuring consistency in comparability and practice among companies (Gornik-Tomaszewski & Millan, 2005). The predominant consensus is based on the grounds that there is no certainty that resulting innovations relative to R&D expenditure will cause a return on the investment (Goodacre & McGrath, 1997). Moreover, they are less easily identifiable and very difficult for external auditors and analysts to verify. Generally, when firms successfully develop an innovation they build on vast amounts of knowledge accumulated, both inside and outside the firm, over many years. Therefore, to reliably put an objective figure on the direct causes of expenditure to be capitalised upon will often be very difficult and ambiguous in practice. Furthermore, assessment of whether or not recorded values should be adjusted for impairment further stress the difficulty involved in measuring such costs. Nevertheless, it can be argued that such uncertainty in R&D is not significantly higher than the other engagements of most public companies in the development of portfolios of projects, or in the investments of real estates, stock or bonds (Lev and Zarowin, 1999; Deng & Lev, 2006).

Another frequently expressed perspective used to oppose R&D capitalisation is the
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