Accounting for intangible assets. Discuss relevance versus reliability as they apply to reporting on the intangible...

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Accounting

Accounting for intangible assets. Discuss relevance versusreliability as they apply to reporting on the intangible assets ofthe firm.

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The intangibles value relevance studies have known an important interest since the early of 90s Sougiannis 1994 concluded that investors place a high value on intangible investments he estimated that on average a onedollar increase in RD expenditures produces a fivedollar increase in market value He distinguished between the indirect effect when RD expenditures affect market values through earnings and the direct effect that reflects new information conveyed by RD He assessed also that on average the indirect effect is more than the direct effect Aboody and Lev 1998 found that capitalized software amounts summarize relevant information they associate with market variables and future earnings Seethamraju 2003 showed significant abnormal returns related to brands capitalized as a part of businesses combination He observed abnormal returns with companies that reported quantitative information more than those that reported only qualitative information Goodwin and Ahmed 2006 confirmed the indirect effect of intangibles on market values they found that intangible assets increase the value relevance of earnings Zhao 2002 showed that the reporting of total RD costs increases the association of stock price with accounting earnings and book values in countries with complete RD See Answer

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