CFO.com had a provocatively titled article this morning that just shouted out for a retort: “Is Accounting Blocking R&D Investments?”
Now how could accounting be doing that? Why, because senior management is preoccupied with meeting short-term quarterly earnings targets, and are cutting back on longer-term focused R&D investments!
I thought this was just an overzealous headline writer, out to get clicks (mission accomplished!) and perhaps the article itself would walk back the ridiculous premise, but instead it doubled down:
The accounting treatment of R&D as a period expense and the overemphasis many public-company executives place on EPS. Many executives pay lip service to the long term benefits of R&D. But in reality they base the size of their companies’ R&D budgets primarily on a single periodâ€™s EPS dilution. Thus, they are only looking at a tiny fraction of the value equation.
It’s gotta be up to management to teach the market how to appropriately value their company, and it’s gotta be management that shares a long-term vision of sustainable profitability to shareholders. This short-termism simply has to stop.
It isn’t the accountants who are pushing for quarterly earnings reports. I’m sure accountants would love to spread out the reporting, it would make their lives a lot easier not to have to calculate myriad accruals on a quarterly basis only to reverse them after.
Value, real lasting value, not just for shareholders but employees and communities, is built over the long haul.