Requiring the expensing of all in-house research

Reference no: EM131118460

Expensing R&D: Will It Kill Me?

In 1974, as the FASB considered requiring the expensing of all in-house research and development expenditures, the Board received many comments predicting that if firms were required to expense R&D, they would significantly cut back on research expenditures to avoid hurting reported earnings. Subsequent to the adoption of FASB Statement No.2, such an impact proved to be difficult to document. Elliott et al. summarized and extended conflicting prior research and concluded that R&D expenditures did decrease after the adoption of FASB Statement No. 2 but that the decrease may have been a function of the generally unfavorable economic conditions in the United States in the mid-1970s. Would you expect that a rule requiring all firms to expense R&D outlays would cause R&D expenditures to decrease? Why or why not?

Reference no: EM131118460

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