The FASB, the SEC, and R&D

Abstract

In 1975 the Financial Accounting Standards Board and the Securities and Exchange Commission banned the deferral (capitalization) method of reporting R&D expenditures for financial statements. The prohibition against deferral mainly affected small companies. To determine whether there was any justification for a concern about the consequent reduction of R&D expenditures, the hypothesis of no decline was tested for a group of 43 small, high technology firms. The hypothesis was rejected. Additional evidence, in the form of responses to a survey of key financial officers of such firms, supports the finding of reduced R&D expenditures.