Accounting for technological innovation: an overview

Technology and, more specifically, significant technological innovation is increasingly being recognized by business executives as both an integral part of business strategy and either a major opportunity for, or strong threat to, their firm's development. A growing number of executives are giving equal attention to both process and product forms of technological innovation, and are scanning technological innovations in the international arena.This paper argues that R&D is an important but not exhaustive component of technological innovation. Its main conclusions from the viewpoint of accounting standards and practice are: - Net cash flow rather than net profit (or loss) is the most relevant financial criterion with which to judge the commercial value and results of innovation. - Both accounting practice and standards should be developed with the clear attempt to ensure international compatabilily. - Given the speed of change in technological innovation, accounting practices and standards should be regularly reviewed, and if necessary altered—two-yearly review seems a justifiable suggestion. - Several standards on accounting for the major fields of technology may need to be developed; however, a broad standard dealing with common issues may be possible. - The input of technologists, researchers and general managers is necessary to ensure that accounting practices and standards are conceptually sound and useful to business managers.