The Effects of R&D Capitalization and Accounting Error Correction on Value Relevance：Focused on the Theme Supervision of Bio－Pharm Companies
Asian Tax Journal Vol. 22 No. 4 (2021), pp. 67-95
Abstract
This study investigates how information users perceive the accounting information generated from the Financial Supervisory Service’s (FSS) guidance policy on themed audit reviews. The results are as follows. After themed audit the capitalized R&D expenditures decrease. The loss firms is significantly positive correlated to the capitalized R&D expenditures. It reflects the unique financial feature of pharmaceutical companies that a failed commercialization following rather optimistic capitalized R&D expenditures lead to excessive impairment losses, ultimately resulting in increases in losses. When the themed audit review was first conducted in 2018, the capitalized R&D expenditures exhibited high value relevance. This indicates that the investors viewed the continued capitalized R&D expenditures even after the stricter standards applied, as healthy and trustworthy, which ultimately led to their decisions. It is also found that for the FSS－sanctioned firms, the higher their capitalized and expensing R&D expenditures, the higher the value relevance.
Keywords
- R&D
- bio－phamaceutical company
- value－relevance
- audit review
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