The Value-Relevance of Alternative Accounting Treatments of Software Development Costs

42 Pages Posted: 27 Oct 1999

See all articles by Kevin J. Den Adel

Kevin J. Den Adel

University of Iowa - Department of Accounting

Date Written: September 10, 1999

Abstract

This paper compares the value-relevance of current accounting practice for software development costs to three alternative accounting treatments: full expensing, full capitalization with uniform amortization, and full capitalization with firm-specific amortization. Test results indicate that full capitalization with uniform amortization is the only alternative accounting treatment that explains more of the variation in observed stock prices than current accounting practice. Overall, the results suggest that market participants adjust reported accounting information to reflect full capitalization of software development costs, but then apply uniform amortization to all firms rather than using reported firm-specific amortization rates.

JEL Classification: M41, M44, G14

Suggested Citation

Den Adel, Kevin John, The Value-Relevance of Alternative Accounting Treatments of Software Development Costs (September 10, 1999). Available at SSRN: https://ssrn.com/abstract=182175 or http://dx.doi.org/10.2139/ssrn.182175

Kevin John Den Adel (Contact Author)

University of Iowa - Department of Accounting ( email )

108 Pappajohn Business Building
Iowa City, IA 52242-1000
United States

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