Accounting convergence of intangibles : value relevance of R & D accounting treatment

The rapid globalization of markets has resulted in further acceleration of the worldwide convergence of accounting standards, including the development of high-quality and globally consistent accounting standards for both domestic and cross-border financial reporting. Prior studies report that earnings value relevance of U.S. companies is decreasing, and the decline is partially attributable to the immediate expensing of intangibles, like research and development (R&D). Being one of the areas of divergence, accounting for R&D was highlighted as one of the seven short-term convergence projects by the FASB and IASB. Australia's adoption of IFRS in 2005 presents an empirical setting to evaluate the value relevance of different accounting treatments for R&D, and ultimately assist financial accounting standard setters in the U.S. and abroad in finding an appropriate accounting treatment for R&D.