This paper examines the extent to which management makes accounting choices to record intangible assets based on their insights into the underlying economics of their firm. It exploits a setting in which management has accounting discretion to record a wide range of intangible assets. The results suggest that management's choice to record intangible assets is associated with the strength of the technology affecting the firms operations, the length of the technology cycle time, and propertyrights‐related factors that affect the firm's ability to appropriate the investment benefits. These effects are more important than other contracting and signaling factors consistent with the underlying economics operating as a first‐order effect as envisaged by GAAP. The results also indicate that the intangible assets management has a voluntary (unregulated) choice to record—identifiable intangible assets—are more highly correlated with underlying economic factors than the regulated classes, purchased goodwill and R&D assets. This result suggests that limiting managements' choices to record intangible assets tends to reduce, rather than improve, the quality of the balance sheet and investors' information set.
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1 July 2005
Research Article|
July 01 2005
Accounting Recognition of Intangible Assets: Theory and Evidence on Economic Determinants
Anne Wyatt
Anne Wyatt
University of Melbourne.
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Online ISSN: 1558-7967
Print ISSN: 0001-4826
American Accounting Association
2005
The Accounting Review (2005) 80 (3): 967–1003.
Citation
Anne Wyatt; Accounting Recognition of Intangible Assets: Theory and Evidence on Economic Determinants. The Accounting Review 1 July 2005; 80 (3): 967–1003. https://doi.org/10.2308/accr.2005.80.3.967
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