Accounting Treatment Of R&D Expenditure:a Means Of Stimulating Enterprise Innovation Or A Tool For Earnings Management

R&D activities have long been regarded as the source of technological innovation and the main way to establish core competitiveness of enterprises and an important indicator to measure their ability to innovate.China pays attention to innovation in various fields,and is increasingly concerned about the development of science and technology and adopts the strategy of innovation for development.In the entire business activities of the enterprise,the proportion of research and development expenses has been increasing,and it has gradually developed into regular and fixed expenditures,playing an increasingly important role in the production and operation of enterprises.In 2006,China promulgated a new accounting standard on research and development expenditures,which stipulated that the accounting treatment of research and development expenditures should be changed from costing to conditional capitalization.The aim is to improve corporate profitability indicators if possible,to promote companies to accelerate technological innovation,and to align with international standards.Compared with the old accounting standards,the conditional capitalization of research and development expenditures is more consistent with the real economic essence.However,because the criteria for the capitalization of R&D expenditure in the standard are five principled conditions,there is no clear distinction between the various stages,and there is no mandatory requirement for the disclosure of R&D.Therefore,in the process of continuous investment in R&D,it is very likely that enterprises will use this standard to manage earnings and achieve the goal of beautifying financial indicators.In order to study the economic consequences of changes in R&D expenditure standards,whether it really stimulates corporate innovation or whether it leads to earnings management.After studying relevant literature,theoretical basis and descriptive statistics on the status quo of the whole industry,this paper adopts a double case study method,and selects the listed companies in the pharmaceutical industry with high R&D expenditures-Fosun Pharma and Hisun Pharmaceuticals for analysis.In the case of Fosun Pharma,this paper mainly studies the company’s R&D investment before and after the change of the standard,including number of R&D staff,R&D investment and the creation of relevant research and development platforms.Research on the R&D output generated after the investment,in terms of its main products and related profit conditions.In the case of Hisun Medicine,this paper mainly demonstrates the existence of earnings management from the perspective of capitalization and accounting policy consistency.At the same time,combined with China’s capital market environment,the status quo of the pharmaceutical industry and the financial situation of Hisun Pharmaceutical this year,it explores the motivation of its earnings management.Finally,it is concluded that the transformation of R&D expenditures into conditional capitalization in the new standard will help the company to increase spending on R&D activities and improve the level of innovation.However,this change in standards has indeed brought the convenience of earnings management to enterprises,especially when the investment in R&D expenditure is large and the performance of listed companies has fallen sharply.Therefore,the paper also summarizes the corresponding targeted initiatives and implications.