Identifying Corporate Expenditures on Intangibles Using GAAP
Melbourne Institute Working Paper No. 12/09
Date: May 2009
Author(s):
Abstract
This paper aims to show how firms account for expenditure on their intangible investments and how this influences their decision making processes. Evidence from our survey of 614 arge Australian companies show that (1) firms do not systematically identify and separate expenditures on intangible investment from expenditures on tangible investment and operating expenditures; and (2) this leads to an information gap that adversely affects the firm’s internal processes for evaluating the decision to invest in intangibles. The paper builds a deductive argument for the use of the general purpose financial reporting system (GAAP) to separate and report the expenditures on intangibles by corporations in a way that is consistent and comparable across firms and over time. Our evidence suggests that investment decisions by management and investors, where intangibles are involved, are likely to be based more on rules-of-thumb than objective evidence.