The Capitalisation Gap: A Challenge to the Conceptual Framework in a Culture of Prudence

The Essex Accounting Centre warmly invites you to join Professor Richard Slack from the University of Durham as he discusses the capitalisation gap.

  • Wed 6 Mar 19

    14:00 - 18:00

  • Colchester Campus


  • Event speaker

    Professor Richard Slack from Durham University

  • Event type

    Lectures, talks and seminars
    Essex Accounting Centre Research Seminar Series

  • Event organiser

    Essex Business School

  • Contact details

    Dr Osamuyimen Egbon

The aim of the Essex Accounting Centre (EAC) research seminar series is to support our world-class research activities in four key areas; social responsibility and corporate governance, (management) accounting change (in privatised, public and third sectors), global development, corruption and accountability, reporting regulations and capital markets. The seminar series is also expected to promote interdisciplinary research that links works of members of the centre with others both within the university and with external institutions.

Seminar aim

Purpose - There is an increasing gap between the market values and book values of companies reflecting in their statements. One area of prominence in this gap is the non-capitalisation of development costs despite their recognised importance in relation to the generation of future returns and company value. Whilst capitalisation is mandatory under IAS 38 (in contrast to US GAAP) based on on qualifying conditions specified in the Standard, there is a prevalence of expensing such costs. This research seeks, through triadic interviews with the stakeholder groups in the information supply chain, preparers, auditors and users to understand this prudent approach to accounting. This is despite the explicit recognition of decision-usefulness in the Conceptual Framework, consistent with the capitalisation of development costs and the recognition of assets that generate future wealth.

Design/method - Semi-structured interviews and a round-table discussion with senior actor in each stakeholder group dealing with financial statements prepared under IAS 38. In total 28 interviews were performed across the three groups with 12 participants at the round-table discussion,

Findings - The interviews and round-table discussion highlighted the dominance of prudence compared to decision-usefulness in accounting for development cost and the lack of asset recognition revealing a tension between approaches. This tension was driven by self-serving interests of preparers and auditors and led to view of accounting irrelevance by analysts and investors as core users of financial reporting information. The findings also show a desire for higher quality disclosure of development assets and proprietary resistance.

Originality - This paper contributes to the capitalisation debate by offering unique insights from senior stakeholders across the information supply chain. The paper highlights the inadequacy of the conceptual framework in dealing with unresolved tension between decision-usefulness and prudence and the consequent lack of recognition of development assets despite their importance in future wealth generation.


The is an open event. Please feel to bring your colleagues, friends and classmates.

Speaker bio

Dr Richard Slack is the Head of Accounting and Professor in Accounting at Durham University Business School. Richard joined Durham University in 2012, having previously been Professor in Accounting at Newcastle Business School, Northumbria University. Prior to his academic career, Richard, a graduate of St Andrews University, worked at Price Waterhouse and is a qualified chartered accountant.

Richard's research encompasses areas of accounting information and ethics. Specifically, he is interested in the way information is portrayed by companies and whether social and environmental disclosure is useful, or not, to stakeholder group.

Richard has a long track record in published research in leading international accounting and ethics journals including;

  • Accounting
  • Auditing and Accountability Journal
  • British Accounting Review
  • Journal of Business Ethics

Currently, Richard is principle investigator on an ACCA funded project examining the use and usefulness of integrated reporting to capital market users. Former funded research was with ACCA to examine bank analysts' views on environmental disclosure and with the Nuffield Foundation to examine building society philanthropy.

Externally, Richard has served as visiting professor at University of Florence. He is also co-chair of the annual Financial Reporting and Business Communication (FRBC) conference and a member of the executive committee of the Financial Accounting and Reporting special interest group BAFA.

In recognition of his research standing, Richard serves on the Editorial Advisory board for the Journal of Applied Accounting Research and Accounting and Business Research.

Richard is a fellow of the Higher Education Academy and currently teaches accounting as part of the KPMG Accounting degree. He also teaches on the full time and Executive MBA programmes. Richard is a very experienced doctoral supervisor, with seven doctoral completions and welcomes research interests in social and environmental accounting.