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Accounting for Expenditure on Intangibles


  • This article is a revised version of an earlier unpublished paper entitled ‘Estimating the Returns from Expenditures on Intangible Investment’ and ‘Identifying Corporate Expenditures on Intangibles Using GAAP’. The authors are grateful for the helpful comments from the editor and three anonymous referees, and John Creedy, Paul Healy, Christoph Loch, Alfons Palangkaraya, Stefan Reichelstein, IBISWorld for the use of their database, and participants at the Accounting and Finance Association of Australia and New Zealand 2007, and the EIASM 4th Workshop on Visualizing, Measuring and Managing Intangibles and Intellectual Capital 2008.

Anne Wyatt ( is a Professor of Financial Accounting in the UQ Business School, University of Queensland; Laurie Hunter ( is an Emeritus Professor, University of Glasgow Business School; and Elizabeth Webster ( is a Professor of Economics in the Melbourne Institute of Applied Economic and Social Research, The University of Melbourne. All three authors are also researchers affiliated with the Intellectual Property Research Institute of Australia, The University of Melbourne.


In search of a unifying measurement feature on which to base a more systematic and potentially comprehensive analysis of intangibles, this paper first analyses the economic and accounting properties of intangibles, and second, empirically evaluates managerial practices for measuring and analysing expenditure on intangibles. We present evidence from a survey of 614 large Australian firms that suggests gaps in the extent with which firms plan, monitor, record, analyse, and report on intangibles. Third, we evaluate the implications of our analysis and survey for accounting practice. Our evidence suggests GAAP has a role to provide guidance that helps firms identify and classify their expenditure on intangibles in ways that elucidate the strategic implications of the different types of intangibles for future output. A secondary step for accountants, after identifying and classifying the expenditure on intangibles, is to apply a capitalization test to distinguish expenses from assets. The current asymmetric treatment of expenditure on purchased versus internally generated intangibles is not supportable on economic grounds. However, economists identify weak property rights as a major cause of uncertainty associated with the outcomes from expenditure on intangibles, suggesting verifiable property rights is a unifying measurement feature on which to base a capitalization test for intangible assets.