Strategic implications of different accounting methods for long-term innovation activities

Abstract

A major theme of this paper is research and development and their strategic implications for long term innovation activities. The main thesis is that R&D expenses are in fact capital expenditures (Capex), because they create future benefits. Hence R&D creates research assets that have to be amortized over time. Moreover, characterizing intangibles as assets that create future benefits can radically change how managers and investors see a business and make certain key decisions, because immediate expensing of intangible assets understates the Capex used to generate intermediate assets and revenues. It means that it generates those assets that are used or held in the business over several years. Many of these assets are depreciated and replaced over a period of time, typically two to ten years. Both cost and fair market values of assets are kept in the records. Cost values are maintained with the tax depreciation records while fair market values are determined by the manager and field st