ACCA finds there is ‘substantial room for improvement’ in R&D reporting

New research from ACCA has found that over half of organisations (53%) are not reporting their research and development (R&D) assets or expenses, warning that there is “substantial room for improvement” with R&D reporting.

The research, done alongside the Adam Smith Business School of the University of Glasgow, found that there was a disconnect between disclosures in the narrative sections of annual reports and the financial statements, potentially confusing users.  

The research, ‘Reporting of R&D: Disclosure without recognition?’, sets out several probable reasons for the “information gap” and a number of recommendations for better reporting.

The recommendations target organisations undertaking R&D, the professional accountants servicing them and those charged with governance, along with auditors, standard setters, policymakers, and the users of annual reports.  

Recommendations for standard setters and policymakers include a critical review and update of the definitions of intangibles and R&D in IAS 38 Intangible Assets; a review of the requirements for recognition and measurement of intangibles and R&D; enhanced disclosure requirements and guidance on applying the definition, and the recognition and measurement requirements. 

Ioannis Tsalavoutas, professor of Accounting, University of Glasgow, said: “Annual reports containing a high volume of R&D-related terms despite not reporting any R&D expenditure separately, are sending mixed signals to users about the significance of R&D to the organisation. Disclosures indicating investment in R&D, but without appropriate detail can be confusing to stakeholders that are looking for information to help inform decisions.”  

Aaron Saw, ACCA senior subject manager – Corporate Reporting, added: “Improved R&D reporting should help users understand the significance of R&D to an organisation’s business model, and connect it to any material financial, social and/or environmental impact relevant to the organisation.”  

Mike Suffield, ACCA director of Policy and Insights, concluded: “If these proactive actions are taken by all parties, the overall quality of corporate reporting by organisations undertaking R&D can be significantly improved, providing the decision-useful information that’s so important to stakeholders.”