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Is it U.S. GAAP or IFRS? Understanding how R&D costs affect ratio analysis
Institution:1. Investment Banking Analyst, Wells Fargo Securities, Graduate, Washington & Lee University (2016);2. Williams School of Commerce, Economics, & Politics, Washington & Lee University, Lexington, VA 24450, U.S.A.;1. Lacy School of Business, Butler University, Indianapolis, IN, U.S.A.;2. Kelley School of Business, Indiana University, Bloomington, IN, U.S.A.;3. School of Management, Zhejiang University, Hanzghou, Zhejiang, China;1. University of Glasgow, Adam Smith Business School, West Quadrangle, Main Building, Room G683, University Avenue, Glasgow, G12 8QQ, Scotland, UK;2. University of Bath, School of Management, Wessex House, Room 9.52, Claverton Down, Bath, BA2 7AY, UK;3. University of Stirling, Accounting and Finance Division, Stirling Management School, Stirling, FK9 4LA, Scotland, UK;1. Huntsman School of Business, Utah State University, 3555 Old Main Hill, Logan, UT 84322-3555, U.S.A.;2. Cornell SC Johnson College of Business, Cornell University, 401L Sage Hall, Ithaca, NY 14853, U.S.A.;3. Paul Merage School of Business, University of California, Irvine, Irvine, CA 92697-3130, U.S.A.;1. Institute of Entrepreneurship, University of Liechtenstein, Fuerst-Franz-Josef-Strasse, 9490 Vaduz, Principality of Liechtenstein;2. Institute of Information Systems, University of Liechtenstein, Fuerst-Franz-Josef-Strasse, 9490 Vaduz, Principality of Liechtenstein;1. Wisconsin School of Business, University of Wisconsin – Madison, Madison, WI 53706-1324, United States;2. Graduate School of Management, University of California – Davis, Davis, CA 95616-5270, United States;3. Lubar School of Business, University of Wisconsin – Milwaukee, Milwaukee, WI 53211-3164, United States
Abstract:While financial reporting standards under U.S. GAAP and IFRS are fundamentally similar, differences do exist that may affect our analysis of company financial statements. This is particularly true when comparing a U.S. company following U.S. GAAP to a firm that uses IFRS. To illustrate, we compare research and development (R&D) accounting methods under both sets of standards and illustrate how they affect the analysis of financial results of firms in a specific industry—automotive manufacturers. Our results provide insight into settings in which differences in R&D accounting may have the greatest impact on financial analysis.
Keywords:IFRS  U  S  GAAP  Financial statement analysis  Research and development  Accounting for research and development
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