...[Overview of R&D Evaluation Methods] 4/27/2015 Strategic Cost Management 1 Background- Strategic Management in R&D • Traditionally R&D Division in any company as been a part of Company’s overhead. • The investment in R&D has been strategically planned to be an “X”% of the sales or the profits achieved by the company. • The financial Matrix for an R&D organization has been poorly defined. • With recent stress on innovation, R&D is back in focus. • A lot of cost cutting measures and Product differentiation methods are now being tracked through R&D divisions through out USA. 4/27/2015 2 Benefits of R&D evaluation programs • Generate additional important information for continuous product improvement. • Document knowledge base and prevent silo operation. • Document research model to prevent repetition of previous unsuccessful models. • Develop systematic cost effective model . • The focus of R&D evaluation program would be on non-financial strategic allignment. 4/27/2015 3 R&D Evaluation programs: NonFinancial benefits • Increase overall efficiency and quality of an research program • Align R&D focus with the corporate strategic goal. • Promote innovation • Co-relate past efforts with the future to reduce down time. 4/27/2015 4 R&D Evaluation programs: NonFinancial benefits • Increase overall efficiency and quality of an research program • Align R&D focus with the corporate strategic goal. • Promote innovation ...
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...The Nature of Strategy Implementation: Marketing, Finance/Accounting, R&D and MIS Issues Learning Outcomes After studying this unit, you should be able to do the following: ➢ Explain market segmentation and product positioning as strategy implementation tools. ➢ Discuss procedures for determining the worth of a business. ➢ Explain why projected financial statement analysis is a central strategy implementation tool. ➢ Explain how to evaluate the attractiveness of debt versus stock as a source of capital to implement strategies. ➢ Discuss the nature and role of research and development in strategy implementation. ➢ Explain how management information systems can determine the success of strategy implementation efforts. Introduction Strategy implementation directly affects the lives of plant managers, division managers, department managers, sales managers, product managers, project managers, personnel managers, staff managers, supervisors, and all employees. In some situations, individuals may not have participated in the strategy-formulation process at all and may not appreciate, understand, or even accept the work and thought that went into strategy formulation. There may even be foot dragging or resistance on their part. Managers and employees who do not understand the business and are not committed to the business may attempt to sabotage strategy-implementation efforts in hopes that the organization will...
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...ANALYSIS ACCOUNTING-BASED VALUATION TECHNIQUES Application Exercises Question 2 Construct a two-period numerical example to show that the accounting-based valuation of a firm is the same whether R&D is capitalized or expensed. ACCOUNTING-BASED VALUATION TECHNIQUES Application Exercises Question 2 Consider R&D Inc., a biotech start up. This firm: • Incurs expenditures in R&D of $50 in the first year of activity; • Has an opening book value of equity of $1,000; • Generates income (before R&D expenses) of $200 in year 1 and $220 in year 2, at the end of which it is liquidated; • Has a cost of equity capital of 10%; • Pays no dividends prior to liquidation; Show that the PVAE obtains regardless of whether R&D Inc. expenses R&D expenditure as incurred or capitalizes and amortizes R&D expenditure! ACCOUNTING-BASED VALUATION TECHNIQUES Application Exercises Question 2 Expensing R&D As Incurred Assume that the R&D expenditure is expensed at the end of year1: [pic] And Thus: PVAE = 1132.2 ACCOUNTING-BASED VALUATION TECHNIQUES Application Exercises Question 2 Capitalising And Amortising R&D (1) Assume that the R&D expenditure is capitalised and amortised linearly: • R&D expense recognised at end of year 1: 25; • R&D expense recognised at end of year 2: 25; [pic] And thus: PVAE = 1132.2 ACCOUNTING-BASED VALUATION TECHNIQUES Application Exercises Question 2 Capitalising And Amortising R&D (2) Assume...
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...international accounting rules for reporting R&D expenditure, with a specific emphasis to pharmaceutical industry. This essay challenges the current dogma of considering R&D as an expanse and also provides some insights into overcoming these challenges. INTRODUCTION Accounting is an art and science of communicating the financial information of the organizations to its managers, employees, investors, creditors etc. There are numerous rules and principals set to report and record these financial transactions, mainly govern by Financial Accounting Standards Board (FASB) in USA known as Generally Accepted Accounting Principles (GAAP) and International Accounting Standards Board (IASB) for international standards known as International Financial Reporting Standards (IFRS). Unlike other industrial sectors, Research and Development (R&D) is the key strength and major financial obligation of pharmaceutical companies. Depending on the size and growth stage, pharmaceutical companies spend 30-40% of their total revenue in R&D. Due to robust healthcare spending pharmaceutical industrial growth is rapidly sprouting worldwide. According to the recent IMS world review and McKinsey Global Institute Report (1), USA remains on top with 444 billion USD projected pharmaceutical markets in year 2015. Therefore, it is imperative to develop logically standardized GAPP and IFRS principals and processes for reporting R&D in financial statements. The disparities among current accounting practices...
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...Benston, G. J. (2006). Fair-value accounting: A cautionary tale from Enron.Journal of Accounting and Public Policy, 25(4), 465-484 Baber, W.R., Fairfield, P.M., & Haggard, J.A. (1991). The effect of concern about reported income on discretionary spending decisions: The case of research and development. Accounting Review, 818-829. Dechow, P. M., & Sloan, R. G. (1991). Executive incentives and the horizon problem: An empirical investigation. Journal of accounting and Economics, 14(1), 51-89. Deegan.C.M. (2012). Australian financial accounting. Sydney: McGraw-Hill Australia, 2012: Feroz, E. H., & Hagerman, R. L. (1990). Management compensation, insider trading and lobbying choice: the case of R & D. Australian journal of management, 15(2), 297-314. Gwilliam, D., & Jackson, R. H. (2008, September). Fair value in financial reporting: Problems and pitfalls in practice: A case study analysis of the use of fair valuation at Enron. In Accounting Forum (Vol. 32, No. 3, pp. 240-259). Elsevier. Gore, P., Taib, F. M., & Taylor, P. A. (2000). Accounting for goodwill: an examination of factors influencing management preferences. Accounting and Business Research, 30(3), 213-225. Goodacre, A., & McGrath, J. (1997). AN EXPERIMENTAL STUDY OF ANALYSTS' REACTIONS TO CORPORATE R&D EXPENDITURE. The British Accounting Review, 29(2), 155-179. Haldeman, R. G. (2006). Fact, fiction, and fair value accounting at Enron. CPA JOURNAL, 76(11), 14. ...
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...THE ACCOUNTING REVIEW Vol. 79. No. 4 2004 pp. 967-1010 Costs of Equity and Earnings Attributes Jennifer Francis Duke University Ryan LaFond University of Wisconsin Per M. Olsson Duke University Katherine Schipper Financial Accounting Standards Board ABSTRACT: We examine the relation between the cost of equity capital and seven attributes of earnings: accrual quality, persistence, predictability, smoothness, value relevance, timeliness, and conservatism. We characterize the first four attributes as accounting-based because they are typically measured using accounting information only. We characterize the last three attributes as market-based because proxies for these constructs are typically based on relations between market data and accounting data. Based on theoretical models predicting a positive association between information quality and cost of equity, we test for and find that firms with the least favorable values of each attribute, considered individually, generally experience larger costs of equity than firms with the most favorable values. The largest cost of equity effects are observed for the accounting-based attributes, in particular, accrual quality. These findings are robust to controls for innate determinants of the earnings attributes (firm size, cash flow and sales volatility, incidence of loss, operating cycle, intangibles use/intensity, and capital intensity), as vi/ell as to alternative proxies for the cost of equity capital. W I. INTRODUCTION e...
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...Memorandum- CPA Report Vincent Mokwenye ACCA 545- Financial Reporting Monday December 18, 2012 Memorandum- CPA Report MEMORANDUM Date: December10, 2012 To: Libby Grimes Re: CPA Report In response to your request for information, this memo will address the methodology used to determine deferred taxes, the various procedures used for reporting accounting changes and error corrections, and the rationale for establishing the subsidiary as a corporation. In addition it will address our professional responsibilities are as a Certified Public Accountants (CPA’s) and finally distinguish between a financial audit and a financial review. The Methodology used to Determine Deferred Taxes The accounting for tax liability is governed by the internal revenue service (IRS) code whereas income statement financial reporting is done according the generally accepted accounting principles (GAAP). The taxable income reported to the IRS is based on the cash basis accounting whereas the pre-tax profit reported in the income statement to the stockholders is prepared using the accrual accounting. As a result, there is a difference between the tax liability reported to the IRS and the tax expense reported in the income statement. This causes the book income reported to stockholders to be different from the tax income reported to the IRS. If certain revenues and/or expenses are reported in different years in income statements and on income tax returns, an asset or liability called...
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...Accounting. Organizations andSocie!y, Vol. 13, No. 3, pp. 251-261, 1988. Printed in Great Britain 0361-3682/88 $3.00+.00 Pergamon Press plc FINANCIAL ACCOUNTING: IN COMMUNICATING REALITY* REALITY, WE CONSTRUCT RUTH D. H I N E S Macquarie University, N.S. W., Australia At first I saw Don Juan simply as a rather peculiar man who knew a great deal.., but the people.., believed that he had some sort of "secret knowledge", that he was a "brujo". The Spanish word brujo means, in English... sorcerer. It connotes essentially a person who has extraordinary.., powers. I had known Don Juan for a whole year before he took me into his confidence. One day he explained that he possessed a certain knowledge that he had learned from a teacher, a "benefactor" as he called him, who had directed him in a kind of apprenticeship. Don Juan had, in turn, chosen me to serve as his apprentice, but he warned me that I would have to make a very deep commitment and that the training was long and arduous... My field notes disclose the subjective version of what I perceived while undergoing the experience. That version is presented h e r e . . . My field notes also reveal the content of Don Juan's system of beliefs. I have condensed long pages of questions and answers between Don Juan and myself in order to avoid reproducing the repetitiveness of conversation... (The Teachings ofDonJuan~.A Yaqui Way of Knowledge, Carlos Castaneda, 1970, pp. 14, 24, 25). We stood together, looking...
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...Journal of Accounting and Economics 7 (1985) 85-107. North-Holland THE EFFECT OF BONUS SCHEMES ON ACCOUNTING DECISIONS* Paul M. HEALY Massachusetts Institute of Technology, Cambridge, MA .02139, USA Received October 1983, final version received September 1984 Studies examining managerial accounting decisions postulate that executives rewarded by earnings-based bonuses select accounting procedures that increase their compensation. The empirical results of these studies are conflicting. This paper analyzes the format of typical bonus contracts, providing a more complete characterization of their accounting incentive effects than earlier studies. The test results suggest that (1) accrual policies of managers are related to income-reporting incentives of their bonus contracts, and (2) changes in accounting procedures by managers are associated with adoption or modification of their bonus plan. 1. Introduction Earnings-based bonus schemes are a popular means of rewarding corporate executives. Fox (1980) reports that in 1980 ninety percent of the one thousand largest U.S. manufacturing corporations used a bonus plan based on accounting earnings to remunerate managers. This paper tests the association between managers' accrual and accounting procedure decisions and their incomereporting incentives under these plans. Earlier studies testing this relation postulate that executives rewarded by bonus schemes select income-increasing accounting procedures to maximize their bonus compensation...
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...Handbook of Management Accounting Research Volume 3 Edited by CHRISTOPHER S. CHAPMAN Imperial College London, UK ANTHONY G. HOPWOOD University of Oxford, UK MICHAEL D. SHIELDS Michigan State University, USA AMSTERDAM – BOSTON – HEIDELBERG – LONDON – NEW YORK – OXFORD PARIS – SAN DIEGO – SAN FRANCISCO – SINGAPORE – SYDNEY – TOKYO Elsevier The Boulevard, Langford Lane, Kidlington, Oxford OX5 1GB, UK First edition 2009 Copyright © 2009 Elsevier Ltd. All rights reserved No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means electronic, mechanical, photocopying, recording or otherwise without the prior written permission of the publisher Permissions may be sought directly from Elsevier’s Science & Technology Rights Department in Oxford, UK: phone ( 44) (0) 1865 843830; fax ( 44) (0) 1865 853333; email: permissions@elsevier.com. Alternatively visit the Science and Technology Books website at www.elsevierdirect.com/rights for further information Notice No responsibility is assumed by the publisher for any injury and/or damage to persons or property as a matter of products liability, negligence or otherwise, or from any use or operation of any methods, products, instructions or ideas contained in the material herein. British Library Cataloguing in Publication Data A catalogue record for this book is available from the British Library Library of Congress Cataloging-in-Publication Data A catalog record for...
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...amortization of past R&D will be at least equal to the R&D expense incurred during that year In year 4, the total expense incurred is 100.00 and that is equal to the total annual amortization of R&D that has been capitalized until year 3. 3. What would you suggest to the managers of the company, with regard to possible modifications in their accounting policies? (For purposes of this question, ignore the revenue creation potential of R&D to emphasize the mechanical aspects of the procedure of R&D capitalization. In doing so, we implicitly acknowledge that Granados considers capitalization of R&D for the sole purpose of managing short-term earnings). The first suggestion to the company would be that they complete all the criteria required to capitalize the operation. In general, what they have to prove in a reliable way is that in terms of technical aspects, the intangible asset will be used or sold. Also they need to prove the intention to finish the project, use it or sell it. Likewise, they have to indicate how this asset will generate future economic benefits (a market to the intangible asset or the result obtain of it.). Furthermore, they have to be able to measure reliably the expenditure attributable to the intangible asset during its development. After the analysis of the impact of the capitalization (and amortization) of R&D against the recognition of this as an expense there are two point to highlight. First, when the company capitalize the R&D amount there will...
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...1. What effect did the TDC and Crescendo arrangements have on ALZA's R&D reported on the income statement? What were the balance sheet effects? Table 1 provided in the case and reproduced below shows the Product Development Revenue recorded on the books of ALZA and the R&D Expense recorded on the books of TDC during the years 1993 through 1997. As shown, the total revenue recorded by ALZA was $275.1 million while the total expense recorded by TDC was $254 million. When preparing its consolidated financial statements, ALZA did not include the assets, liabilities, equity, revenue, or expense accounts of TDC; therefore, the financial results reported in TDC's financial statements were not reflected in ALZA's consolidated financial statements. Table 2 provided in the case and reproduced below shows the product development revenue recorded on the books of ALZA and the R&D expense recorded on the books of Crescendo. At first glance, the numbers seem to be confusing since Crescendo's expense exceeds ALZA's revenue in all but the final year. Apparently there were some timing issues regarding ALZA's recording of product development revenue and Crescendo's recording of R&D expense. Over the term of the agreement, ALZA recorded total product development revenue of $283.5 million, and Crescendo's recorded total R&D expense of $278.2 million. As with TDC, ALZA did not incorporate the assets, liabilities, equity, revenue, or expense accounts of Crescendo in its consolidated...
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...Financial Accouting EXECUTIVE SUMMARY Accounting for intangible assets is a major issue within the accounting environment. The issue is identifiable when it concerns accounting for research and development costs, in particular, internally generated assets. With two imperative standards in practice today, one being the IASB’s selective capitalisation of expenses into an intangible asset once a specific criteria has been reached and the other being the FASB’s system of straight expensing of all expenditure. This subject plays a vital role in the accounting world due to the large amount of money invested into research and development activities, with the Australian Bureau of Statistics 2010 reporting that Business expenditure on R&D (BERD) in Australia alone increased 15% to $14, 380 million up from 07-08. In discussing the different styles taken by the Boards it is easier to identify the impact these standards have on a corporation and its performance, with particular reference being made to Clinuvel Pharmaceuticals Limited, an Australian listed company that is currently undertaking research and development to develop a UV medical protection of the skin from UV and light for sun-related ailments. 1. Clinuvel Activities of R&D Clinuvel Pharmaceuticals Limited (CUV) is a listed Australian biopharmaceutical company based in Melbourne. The focus of CUV is to further research and develop, and eventually commercialise, its leading drug candidate afamelanotide as “a preventative...
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...Fdasfsad fjdklsajfkldsajkl klljflkdjsalk;fjdskal kljkljklfdas jkljkljkl jkljlkjlk jkjkljlk jkljlkj today Yesterday tomorrow Tuesday taco burrito yes no maybe a b c d e f h g h I j k l m n o p q r t s y u v s f g h r t s d g t a s d h b v f e r s d g h h j y d d a s d g g t tii 343 5 6 6 3 3 2 clerk can immediately issue a check against that purchase order and sign the check. For approved purchase orders between $5,000 and $10,000, the accounting clerk can immediately issue a check but must additionally obtain a second signature. Payments for approved purchase orders over $10,000 always require the approval of the accounting manager to issue the check as well as the signature of two accounting clerks. Payments that are not covered by a purchase order that are under $5,000 must be approved by the accounting manager and a departmental manager that will absorb the cost of the payment into that department’s budget. Such checks can be signed by a single accounting clerk. Payments that are not covered by a purchase order that are between $5,000 and $10,000 must be approved by the accounting manager and a departmental manager, and the check must have two signatures. Finally, payments exceeding $10,000 that are not covered by a purchase order must be approved by a department manager, the accounting manager, and the chief financial officer. Such checks require two signatures. Use a decision table to represent the logic in this process. Write down any assumptions you have to...
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...EXECUTIVE SUMMARY Accounting for intangible assets is a major issue within the accounting environment. The issue is identifiable when it concerns accounting for research and development costs, in particular, internally generated assets. With two imperative standards in practice today, one being the IASB’s selective capitalisation of expenses into an intangible asset once a specific criteria has been reached and the other being the FASB’s system of straight expensing of all expenditure. This subject plays a vital role in the accounting world due to the large amount of money invested into research and development activities, with the Australian Bureau of Statistics 2010 reporting that Business expenditure on R&D (BERD) in Australia alone increased 15% to $14, 380 million up from 07-08. In discussing the different styles taken by the Boards it is easier to identify the impact these standards have on a corporation and its performance, with particular reference being made to Clinuvel Pharmaceuticals Limited, an Australian listed company that is currently undertaking research and development to develop a UV medical protection of the skin from UV and light for sun-related ailments. 1. Clinuvel Activities of R&D Clinuvel Pharmaceuticals Limited (CUV) is a listed Australian biopharmaceutical company based in Melbourne. The focus of CUV is to further research and develop, and eventually commercialise, its leading drug candidate afamelanotide as “a preventative treatment for...
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