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Accounting recognition of intangible assets: Theory and evidence on economic determinants

journal contribution
posted on 2005-01-01, 00:00 authored by Anne WyattAnne Wyatt
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.

History

Journal

Accounting Review

Volume

80

Issue

3

Pagination

967 - 1003

Publisher

American Accounting Association

ISSN

0001-4826

eISSN

1558-7967

Language

en

Publication classification

C1.1 Refereed article in a scholarly journal; C Journal article