The impact of SEC scrutiny on financial statement reporting of in-process research and development expense

Dowdell, Thomas D.; Press, Eric

doi:10.1016/s0278-4254(04)00022-5

Cited by 12 publications

(24 citation statements)

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“…Finally, we find that the proportion of acquisitions with high IPRD charges relative to targets’ prior R&D significantly declines following the SEC's scrutiny of IPRD. Our final result extends Dowdell and Press’ (2004) findings–that informal SEC pressure led to lower IPRD levels–since we provide evidence that it also led to more appropriate IPRD reporting.…”

Section: Introductionsupporting

confidence: 84%

“…In‐process research and development (IPRD) is the value allocated to incomplete R&D projects in purchase acquisitions, which is charged to an expense by the acquirer as of the acquisition date. Our results contribute to the earnings management literature by extending the work of Dowdell and Press (2004), who examine the impact of SEC scrutiny on the magnitude of IPRD write‐offs, but not their appropriateness.…”

Section: Introductionmentioning

confidence: 67%

“…The staff ‘identified circumstances where many of the facts appear at odds with the fair value assigned to that asset as part of the purchase price allocation’ (Turner, 1998a). The SEC's examination identified ‘companies’ failures to isolate R&D from the basket of other assets acquired; shoddy analysis of the development stage of the R&D projects acquired; and unrealistic appraisal of the R&D projects’ (Dowdell and Press, 2004, p. 231). Most disturbing to Chief Accountant Turner (Turner, 1999) was evidence that:…”

Section: Iprd Write‐offs and Sec Concernsmentioning

confidence: 99%

“…The fourth question we consider is whether the frequency of acquisitions with relatively high IPRD decreased following the SEC's scrutiny in September 1998. Dowdell and Press (2004) examine whether SEC scrutiny of IPRD led to a decrease in IPRD intensity (IPRD/Assets Acquired). Left unexamined in their work is the possibility that properties of the firms being acquired changed.…”

Section: Research Issues Surrounding Iprdmentioning

confidence: 99%

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Were In‐Process Research and Development Charges Too Aggressive?

Dowdell

Lim

Press

2009

Business Fin & Account

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Prior research documents that US firms write off large in-process research and development charges (IPRD) for acquisitions, possibly overstating the current period expense to inflate future earnings. Consequently, in 1998, the US Securities and Exchange Commission (SEC) began scrutinizing IPRD charges. We use pre-acquisition R&D expenses of 144 target firms as a benchmark for assessing whether IPRD charges are appropriate. Overall, the results suggest that most firms during our sample period were not overly aggressive in expensing IPRD-especially for acquisitions subsequent to the SEC's scrutiny. The results also indicate that the SEC's intervention reduced the frequency of overstated IPRD charges. Copyright (c) 2009 The Authors Journal compilation (c) 2009 Blackwell Publishing Ltd.

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Section: Introductionsupporting

confidence: 84%

Section: Introductionmentioning

confidence: 67%

Section: Iprd Write‐offs and Sec Concernsmentioning

confidence: 99%

Section: Research Issues Surrounding Iprdmentioning

confidence: 99%

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Were In‐Process Research and Development Charges Too Aggressive?

Dowdell

Lim

Press

2009

Business Fin & Account

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“…These approaches often focus on single income statement items, for example write-offs (e.g. Dowdell and Press 2004). The main advantage of a single account analysis in comparison to the total accruals is the possibility of a more detailed inspection and following superior statements about unmanaged accounting standards.…”

Section: Developing Of Earnings Management Detection Modelsmentioning

confidence: 99%

Earnings Management before Bankruptcy: A Review of the Literature

Dutzi¹,

Rausch²

2016

JAARP

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Capitalization of In‐Process Research and Development under SFAS 141R and Information Asymmetry

Chung

Hillegeist

Park

et al. 2019

Contemporary Accting Res

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This study examines the effect of capitalizing acquired in‐process research and development (IPR&D) on information asymmetry under Statement of Financial Accounting Standards No. 141 (R) (SFAS 141R). SFAS 141R requires acquirers to fully recognize IPR&D at fair value as an indefinite‐lived intangible asset until completion or discontinuation of the project. Prior research suggests IPR&D capitalization will result in an improvement in the information environment. In contrast, we find no evidence that capitalizing IPR&D improved the information environment for IPR&D acquirers. Instead, most of our results suggest no significant change in information asymmetry for IPR&D acquirers during the post‐SFAS 141R period, relative to the concurrent changes for non‐IPR&D acquirers. In cases in which the results suggest a statistically significant increase, the economic magnitudes are relatively small. In addition, we find no evidence that IPR&D acquirers engaged in increased classification shifting between IPR&D and goodwill during the post‐SFAS 141R period, as critics of capitalization had feared.

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The impact of SEC scrutiny on financial statement reporting of in-process research and development expense

Cited by 12 publications

References 0 publications

Were In‐Process Research and Development Charges Too Aggressive?

Were In‐Process Research and Development Charges Too Aggressive?

Earnings Management before Bankruptcy: A Review of the Literature

Capitalization of In‐Process Research and Development under SFAS 141R and Information Asymmetry

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