Enforcing Financial Reporting Standards: The Case of White ...

Enforcing Financial Reporting 

Standards: The Case of White 

Pharmaceuticals AG 

Henning Zülch, Dominic Detzen 

November 2010 

A case study conducted by the Chair of Accounting and Auditing 

at HHL – Leipzig Graduate School of Management 

supported by “Gesellschaft für kapitalmarktorientierte Rechnungslegung e.V.” 

No. 105

Enforcing Financial Reporting 

Standards: The Case of White 


Henning Zülch, Dominic Detzen 

ISSN 1864-4562 (Online version) 

© HHL – Leipzig Graduate School of Management 

HHL-Arbeitspapier 

HHL Working Paper 

No. 105 

The sole responsibility for the content of the HHL Working Paper lies with the author/s. We 

encourage the use of the material for teaching or research purposes with reference to the source. 

The reproduction, copying and distribution of the paper for non-commercial purposes is permitted 

on condition that the source is clearly indicated. Any commercial use of the document or parts of its 

content requires the written consent of the author/s. 

For further HHL publications see www.hhl.de/publications. 

. 105

Enforcing Financial Reporting Standards: The Case of White 


Abstract 

As a consequence of accounting scandals, Germany – like many other countries – set up a 

supervisory body to control the compliance of capital market oriented companies with 

accounting regulations. The Financial Reporting Enforcement Panel (FREP) assumed their 

duty in July 2005 and has forced a number of companies to restate their financial statements. 

This case study adapts one of the real cases of the FREP and invites students to reflect on the 

enforcement of financial reporting standards: White Pharmaceuticals AG enters a strategic 

alliance to profit from the research and development of their partner. The company charges 

all payments that it conducts in the course of the alliance to their expense accounts. The 

FREP, however, finds that the final lump-sum payment should have been capitalized by 

White. The case reviews the accounting for research and development expenditure and also 

discusses the convergence of financial reporting standards in the U.S. and Europe. 

Keywords: Financial Reporting Enforcement, Research and Development, IFRS

Introduction 

THE CASE 

Peter Schmidt, head of the accounting department of Germany-based White 

Pharmaceuticals AG 1 , had been waiting for the letter for quite a while now. When it finally 

came, his hands started shaking as he read “Financial Reporting Enforcement Panel” on the 

envelope. Opening the letter he recalled the painfully long days in his office during which he 

tried to answer countless questions to the panel’s satisfaction. As he read through the letter, 

his face grew paler. This was exactly what he had warned the CFO of White Pharmaceuticals 

AG of and exactly what he had described as a worst case scenario. In the letter, dated 

November 18 th 

2009, the Financial Reporting Enforcement Panel (FREP) requested a 

restatement of White’s financial statements for the year 2006. Income as well as intangible 

assets had been understated by 55 million Euros as White Pharmaceuticals AG had expensed 

a payment made to acquire research results. With the letter in his hand, Peter slowly walked 

to the office of Alexander Muller, White’s Chief Financial Officer, and reflected on the 

events that had led to the examination by the FREP. 

White Pharmaceuticals AG was founded in 1956 by Paul White and his brother 

Roland. Since its inception, the company had been headquartered in a small town near 

Frankfurt, Germany, and had specialized in various fields of pharmaceutical research. In 

recent years, White Pharmaceuticals AG had benefited from major breakthroughs with drugs 

for neurological diseases and subsequently experienced a remarkable growth with revenues 

that soon exceeded 1 billion Euros. In 2000, the current CEO and son of Paul White, Richard, 

decided to use the momentum to have his company listed on the German stock exchange. The 

initial public offering (IPO) was a huge success for Richard White who also took the 

opportunity to reward his employees for their contribution to White’s recent success. At the 

1 All names, dates and locations have been changed, as have the “characters” involved in the case. 

1

same time, he made his intention quite clear that he did not want to rest but that he wanted to 

challenge the big pharmaceutical companies. 

The Cooperation Agreement 

In a meeting subsequent to the IPO, Mr. White asked his managerial staff for options 

to grow further and to expand into additional markets. His CFO, Alex Muller, proposed to 

sustain the recent growth by entering strategic alliances with other research companies. 

Richard White agreed with his CFO as he saw a huge potential for his company to both profit 

from joint research results and from entering new markets. His considerations also based on 

the fact that, following the IPO, White Pharmaceuticals AG had enough money to make 

strategic alliances attractive to potential partners. Thus, Mr. White encouraged his staff to 

follow this idea and find research companies that fit into their portfolio. 

Soon, a US-based company called Neurocentral, Inc. was identified and offered a 

partnership which the company gratefully accepted as they had been facing serious funding 

problems recently. Neurocentral, Inc. was a medium-sized pharmaceutical company that also 

specialized in the development of neurological drugs. According to the terms of the 

partnership, White Pharmaceuticals AG received access to Neurocentral’s research results by 

obtaining the sole rights to sell the jointly developed drugs worldwide. White would therefore 

be able to expand into additional markets while profiting from Neurocentral’s good ties to the 

U.S. Food and Drug Administration (FDA). For Neurocentral, Inc., on the other hand, the 

alliance meant that their funding problems were solved. Simultaneously, they could increase 

their competitiveness which had also suffered lately. Both companies were delighted with the 

alliance and signed the contract in 2001 feeling like they were getting the most out of the 

deal. 

2

Thus, the companies jointly agreed on the development of a transdermal patch that 

treats a common form of epilepsy. Neurocentral, Inc. had made a lot of progress in the 

research and expected to start clinical studies in the near future. To fund this R&D project, 

White Pharmaceuticals AG was to provide its U.S.-counterpart with three forms of 

compensation that corresponded to the typical steps in a drug development process 2 

: After 

signing the contract, Neurocentral, Inc. was to receive a non-refundable upfront payment of 

five million Euros that was directly linked to the development of the transdermal patch. 

Using this money, the American company could increase their research efforts and complete 

the research and the pre-clinical phase in the year 2001, a little earlier than expected. In 

addition, White Pharmaceuticals AG would make two milestone payments of ten million 

Euros each as soon as Neurocentral, Inc. reached pre-defined targets in the development of 

the patch. The payments would become due when Neurocentral completed Phase I and II of 

the clinical studies which would be when preliminary testing of the new drug provided first 

results on central characteristics like dosage range, efficacy and side effects. Provided that no 

complications arose, Neurocentral, Inc. estimated to finalize Phase I in 2002 and Phase II in 

2004. The final component of the compensation package would include a lump-sum payment 

of 55 million Euros that White would transfer when Neurocentral, Inc. completed the final 

clinical studies (Phase III) successfully. Early estimations by Neurocentral’s researchers 

showed that they expected the drug ready for approval in 2006. In exchange for their 

payments, White Pharmaceuticals AG received worldwide commercialization rights for the 

transdermal patch. Consequently, White would use their own resources to file for approval of 

the patch with both FDA and European Medicines Agency (EMA). The post-approval studies 

(Phase IV) would also be undertaken by White who would then continue to market the new 

drug. 

2 See Appendix for a depiction of the drug development process and the payment structure. 

3

Accounting for the Agreement 

Soon after the contract was signed and the corresponding upfront payment was made, 

Peter Schmidt was confronted with analyzing the partnership from an accounting perspective. 

For him, the key issue concerning the payments was quite clear. The subject revolved around 

the question whether to recognize an intangible asset or whether to expense the costs as the 

payments were made. He knew that IAS 38 sets the rules for the treatment of intangible 

assets and research and development expenditures. Here, he read that he needed to 

distinguish between separately acquired and internally generated intangible assets. The 

former are usually capitalized as the definition and recognition criteria of IAS 38 are fulfilled. 

Concerning internally generated intangibles, however, IAS 38 differentiates between a 

research and a development phase. While costs for research are to be expensed, costs that are 

incurred in the development phase are recognized as intangible assets if an additional set of 

criteria is fulfilled. 

With these abstract explanations in mind, Peter sought to assess the upfront payment 

concerning a possible capitalization. He remembered that when he first started his job, Alex 

Muller told him that “we expense almost all of our R&D costs. That’s what everyone does in 

the pharmaceutical industry. Besides, we never know if we will receive approval by EMA or 

FDA. Only if we have the authorization do we recognize the costs for the development of the 

approved drug. And we only capitalize those costs that we incur after the approval.” Still 

unsure about what to do Peter called his colleague at Neurocentral, Inc. and asked him to 

assess the situation. Jeff Hudson, head of accounting at Neurocentral, Inc., was about to go to 

a meeting when his phone rang. Jeff was surprised by the question but did not have too much 

time to get involved with the issue. Thus, he simply said: “Look, Peter, I am kind of busy at 

the moment. But I can tell you that, here, in the U.S., we don’t recognize costs that we incur 

when doing research for new drugs. SFAS No. 2 doesn’t allow a capitalization. However, if 

4

we acquire R&D, that’s a different story. In that case, we follow SFAS No. 141 and SFAS 

No. 142 and capitalize the acquired in-process R&D. But I’m not really sure what I would do 

in your situation. Besides, you’re an IFRS guy and, as far as I know, R&D accounting still 

differs on our continents.” Peter didn’t feel like his American counterpart had fully 

understood his problem but was still thankful for Jeff’s quick assessment of the situation. 

Feeling that he had to solve the issue himself, Peter considered the nature of the 

upfront compensation. White Pharmaceuticals AG conducted the payment to profit from the 

research carried out by Neurocentral, Inc. While White Pharmaceuticals AG received all 

rights to the research performed, Peter did not perceive the five million Euros as an 

acquisition of an intangible asset. Instead, he felt that White only provided Neurocentral with 

the funding for research activities that the company performed. Following this reasoning, the 

payment had to be regarded as if White’s researchers were conducting the research. And, 

considering the status the research was in at that time, no one could tell if the project would 

eventually yield a product that White would be able to sell. Therefore, the up-front payment 

would fall under the definition of research expenditure which IAS 38 prohibits from 

capitalizing. Although being skeptical of his argumentation, he charged the five million Euros 

to White’s R&D expenses. 

Thereafter, the project proceeded as expected and Neurocentral, Inc. started the 

clinical studies in 2002. In the same year, they were able to complete the first phase of the 

studies which provided them with a safety profile of the transdermal patch. Acting upon their 

role in the collaboration agreement, White transferred the first milestone payment of ten 

million Euros as soon as they received the latest research report from their partner. As a 

consequence of the payment, Peter was again confronted with the accounting for the alliance. 

Considering that the project had progressed to the development phase which, according to 

IAS 38, meant that incurred costs should be recognized, he wanted to discuss a possible 

5

capitalization of the payment with his CFO. In their meeting, Peter outlined his train of 

thought and explained that a capitalization may be necessary. He argued that White received 

all rights to the research performed and to the development carried out thus far. Therefore, 

the ten million Euros could be considered part of the intangible asset that White acquired in 

the course of the collaboration. Besides, Peter told Mr. Muller that IAS 38 required 

enterprises to recognize expenses that they incur in the development phase. Alex Muller 

listened carefully to what Peter Schmidt told him. However, he made clear that he assessed 

the payment differently: “I understand your reasoning, Peter, but I don’t share your opinion. I 

believe that assessing the agreement is a two-step-process. First, we have to judge whether or 

not the transaction is an acquisition of R&D. I don’t consider the agreement as an acquisition, 

but as an outsourcing of our R&D because we just fund the research and development 

conducted by Neurocentral. Thus, the second and central question that we have to ask is: 

Would we capitalize our expenses if we conducted the R&D in-house? And the answer is: 

No, we would not. At this point in the development process, we do not know if we will ever 

get a marketable product. And, if you read IAS 38, the standard tells you that an enterprise 

should only capitalize R&D if it can demonstrate that the intangible asset will yield future 

economic benefits. But as we don’t have approval by either FDA or EMA yet, we cannot 

reasonably expect future economic benefits from the product. All this leads me to the 

conclusion that we don’t have to capitalize the milestone payment.” Although Peter felt that 

he had made a valid point, Alex Muller’s argumentation also sounded convincing. In the end, 

he decided to follow his CFO’s reasoning as Mr. Muller had been in the business longer than 

Peter and could therefore reasonably be expected to know the relevant accounting practices in 

the industry. Thus, he recorded the milestone payment as part of White’s expenses. 

While Peter had struggled with the accounting treatment of the ten million Euros, 

Neurocentral, Inc. had begun with the second phase of the development. In the years 2003 

6

and 2004, the transdermal patch was tested with 250 patients who were closely monitored to 

observe possible side effects of the drug. At the same time, these tests provided Neurocentral 

with first indications of the actual efficacy of the patch. Researchers at the American 

company and their counterparts in Europe were both delighted with the progress with which 

the project advanced. In 2004, Neurocentral, Inc. proudly notified White Pharmaceuticals AG 

that the second phase was completed successfully. In return, White transferred another ten 

million Euros expecting to soon receive a fully developed product. For Peter who still had his 

CFO’s reasoning in mind, the milestone payment seemed of a similar nature as the one made 

in 2002. Concluding that no intangible asset was received in return for the ten million Euros, 

he again expensed the milestone payment as he had done with the previous one. 

Subsequently, Neurocentral, Inc. conducted Phase III of the development process 

which typically is of much larger scale. As the company had not observed any severe side 

effects from the patch so far, they were able to limit the final clinical study to 1,000 patients. 

Over the course of two years, Neurocentral again tested the transdermal patch and observed a 

great effectiveness of the drug. What’s more, no complications or additional side effects 

arose. Accordingly, the development process was completed in 2006 which was celebrated at 

both companies. After receiving all documents associated with the transdermal patch, White 

Pharmaceuticals AG went on to make the final lump-sum payment of 55 million Euros to 

Neurocentral, Inc. In addition, they used the documents received to compile the application 

for FDA and EMA approval. Thus, the project had been completed and Peter faced the last 

payment resulting from the agreement. He realized that Mr. Muller’s argumentation was still 

valid – White had filed for approval but not received an authorization for the drug yet. As a 

consequence, he again charged the 55 million Euros to White’s expense accounts. 

Nevertheless, the official termination of the agreement made him reconsider the accounting 

treatment and he decided to openly discuss the issue with White’s auditors. 

7

The Discussion with White’s Auditors 

At year’s end, Peter sat down with the auditors and was asked if any extraordinary 

transactions had occurred. He described the circumstances of the alliance with Neurocentral, 

Inc. and asked the auditors for their opinion on the lump-sum payment. A few days later, 

after the auditors had analyzed the issue, they discussed whether White had acquired an 

intangible asset or whether the payment was part of White’s R&D expense. The auditors, 

however, suggested that the issue may be open to interpretation. On the one hand, they shared 

Alex Muller’s assessment and acknowledged that the lack of an official approval indeed 

made a capitalization questionable. On the other hand, they shared Peter’s doubts and 

indicated that the approval only seemed to remain a legal formality. The clinical studies had 

been completed without any complications and White could present the necessary paperwork 

for an approval by FDA or EMA. This would lead to the conclusion that all criteria in IAS 38 

were fulfilled and the costs incurred in the last stage of the development phase, i.e. 55 million 

Euros, should be recognized. In addition, the auditors declared that the transaction could also 

be interpreted as an acquisition of an intangible asset. Consequently, the price White had paid 

for the R&D could be seen to reflect White’s expectations concerning an inflow of economic 

benefits. According to IAS 38, such a separate acquisition always resulted in an intangible 

asset that had to be recognized by the acquirer. Regardless of these discussions, Alex Muller 

who joined Peter and the auditors at the meeting insisted on the fact that White only 

compensated Neurocentral, Inc. for the research and did not acquire an asset. He claimed that 

he had researched similar transactions and found that engaging another entity to conduct 

research did not constitute an acquisition of an asset. Thus, he asserted that the arrangement 

with Neurocentral, Inc. had to be evaluated as an outsourcing of research and development. 

Following this argumentation, he demanded to apply the same criteria as would be the case if 

the R&D was conducted in-house, i.e. by White’s own research department. And, in that 

8

situation, they had to evaluate if all criteria of development costs were fulfilled. He, again, 

negated that White could already expect future economic benefits as White still did not have 

an approval by either FDA or EMA. Therefore, he pushed for an expense charge of the lump- 

sum payment. As the auditors could not provide an unequivocal interpretation that asserted 

the contrary and as they had specifically asked for managerial judgment, they eventually 

decided to follow Mr. Muller’s reasoning and approved the expense charges. 

The Examination 

Although the transdermal patch turned out to be a huge success and the executive 

teams of both White Pharmaceuticals AG and Neurocentral, Inc. were eager to extend the 

alliance, they could not agree on a follow-up project and the collaboration was terminated. 

Consequently, Peter slowly forgot about his struggle of how to treat the payments to 

Neurocentral, Inc. Thus, in the summer of 2008, Peter was not in the least worried when 

White Pharmaceuticals AG received a letter by the Financial Reporting Enforcement Panel. 

In their letter, the FREP told White Pharmaceuticals AG that the company was chosen at 

random to be inspected by the new supervising authority. They would like to examine 

White’s financial statements for the year 2006. Mr. Muller did not really know what was 

coming at them but he put Peter in charge of the FREP investigation as “this is an accounting 

thing and it’s clearly your job to handle this”. As a first task, Peter was to provide the FREP 

with White’s annual as well as quarterly financial statements including auditor’s report and 

their summary of unadjusted audit differences. When two months passed without an 

additional notification by FREP, Peter started wondering what the examination would bring 

about. A little while later, White received another letter from the enforcement institution that 

indicated areas that the FREP would put an emphasis on in their examination. At the same 

time, they requested a number of documents to be sent back to the FREP within the next two 

9

weeks. The short time frame surprised Peter and he was glad that he could rely on his team to 

help him provide all documents necessary and answer all questions. Still, they struggled with 

several of the panel’s queries and, in the end, barely made the deadline to send the material 

back. Relieved from this stress, he turned back to his routine business at White which had 

suffered in the prior weeks. While having hoped that the examination was over, he was 

proved wrong by another notification that came about two months later. The institution 

requested more material and asked even more questions than before. Holding the letter in his 

hands, he started to realize that this would be a tough year for him. Over a period of ten 

months, Peter repeatedly received notifications and letters that he was to respond to in a very 

short period of time. Again and again, his usual habit of working eight to nine hours a day 

turned into a frenzy of long nights that often lasted until midnight. As soon as he had finished 

the latest request by FREP, he needed to take care of his usual work and started worrying 

when the next letter was coming. 

On a regular basis, he met with Mr. Muller to talk about the status of the examination 

and to discuss how they should handle the panel’s investigation. How should they 

communicate with the capital market? Should they openly inform investors of what was 

going on or should they wait until they received the results of the investigation? After long 

debates, Mr. Muller decided to wait and assured Peter that “everything will work out 

eventually” and that “investors don’t need to know everything”. While pondering this issue, 

Peter realized that the FREP’s questions soon circled around White Pharmaceuticals’ 

payments to Neurocentral, Inc. and he recalled his insecurity concerning the treatment of the 

compensation. Looking at White’s financial statements for the year 2006, he saw that the 

company expensed a total amount of 240 million Euros for research and development. This 

amount included 55 million Euros which represented the final lump-sum payment to 

Neurocentral, Inc. Suddenly it dawned on Peter that they might have made a mistake. 

10

With FREP’s concluding letter in his hand, Peter Schmidt was walking towards Mr. 

Muller’s office. He prepared to tell his boss what had gone wrong. The FREP stated that 

White Pharmaceuticals AG had incorrectly expensed 55 million Euros in 2006. This amount 

should have been recognized because it represented the costs of a separately acquired 

intangible asset. In exchange for their payment, White had received a fully developed product 

which could reasonably be expected to result in an inflow of economic benefits. Therefore, 

White’s income and assets had been understated by 55 million Euros. In addition, the FREP 

indicated that they had serious doubts about the treatment of the milestone payments. 

However, these doubts did not result in an additional finding. The letter further read that if 

White Pharmaceuticals AG accepted the statement, the error would be released in the 

electronic German Federal Gazette. If White wanted to object, they had to address this issue 

with the Financial Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufsicht, 

BaFin) who would then carry out their own investigation. Knocking on the CFO’s door, Peter 

wondered how investors would react upon learning that the examination had been concealed 

from them. 

Research and Development Costs 

REQUIREMENTS 

1. The central issue of the case is the treatment of White Pharmaceuticals’ payments to 

Neurocentral, Inc. 

(1) How are research and development costs treated (a) according to IFRS and 

(b) according to US-GAAP? 

(2) How are separately acquired intangible assets treated (a) according to IFRS and 


11

(3) Assess the payments made by White according to the criteria set out in IAS 38. 

Which payment would you have recognized in Peter’s place? 

2. Costs for research and development are a major part of a pharmaceutical company’s 

spending. 

(1) Why does capitalizing R&D seem to be an area of managerial discretion, although 

there are explicit rules of how to treat R&D? 

(2) Are there advantages (disadvantages) of capitalizing R&D? 

(3) White’s CFO tells Peter Schmidt that the pharmaceutical industry charges most of 

their R&D costs to expenses. Table 1 shows the ratio of capitalized R&D to total 

R&D expenditures in different industries. Can you imagine why industries differ in 

their treatment of R&D? 

Industry ATL BCU CPH FBI IND MTST RCF 

Capitalized R&D / 

Total Costs for R&D 

29.73% 36.66% 1.66% 31.01% 13.60% 45.54% 15.99% 

Table 1: Capitalizing Development Costs in Germany (ATL=Automobile, Transportation, Logistics; 

BCU=Basic Resources, Construction, Utilities; CPH=Chemicals, Pharmaceuticals, Healthcare; 

FBI=Financial Services, Banks, Insurance; IND=Industrial; MTST=Media, Technology, Software, 

Telecommunication; RCF=Retail, Consumer, Food&Beverages; Hager and Hitz 2007). 

(4) The IFRS Framework constitutes qualitative characteristics that financial statements 

are to fulfill. Do you think that the accounting for research and development costs 

corresponds to the qualitative characteristics of relevance and reliability? 

Global Accounting Standards: IFRS and US-GAAP 

The case study reviewed the different treatment of R&D costs according to IFRS and US- 

GAAP. As the IASB and the FASB want to create uniform global accounting standards, 

many financial reporting standards will change and many companies face a complex process 

to adapt their accounting systems (see, for example, Gornik-Tomaszewski and Jermakowicz, 

2010). 

12

(1) Can you think of advantages (disadvantages) of global accounting standards? 

(2) What is the impact on reporting entities that have to adapt their accounting? 

(3) The IASB and the FASB also plan to converge the rules for R&D expenditures. However, 

the project has been set on hold in 2009. Outline the boards’ approach concerning the 

convergence. Can you imagine possible hindrances to the convergence of R&D 

accounting? 

Enforcement of Financial Reporting Standards 

1. In Germany, an institution that enforces financial reporting standards was only 

established in recent years. 

(1) What is the reasoning behind an institution that enforces financial reporting 

standards? 

(2) How are companies that are to be inspected selected? What does the German 

enforcement process look like? 

2. At the end of our case, Peter receives a final letter by the FREP that presents an error 

finding to him. He is wondering what the consequences of this finding are. 

(1) What are White’s possible responses to the finding? Which way would you pursue? 

Why? 

(2) How do you think will investors react to the error finding? How should White 

Pharmaceuticals AG have best reacted to the examination by the FREP? 

(3) Who is to take responsibility for the restatements? Which role do you attribute to 

White’s auditors? 

(4) Imagine that Alex Muller asked Peter to appeal FREP’s finding. What would be his 

motivations to do so? In your answer, outline arguments that Peter could use to 

successfully appeal the decision. 

13

(5) Now, imagine that White’s CFO decided to accept the finding. How would Peter go 

about restating White’s financial statements? 3 

In your answer, refer to IAS 8 and 

examine what decisions Peter has to make. Also, consider how White best let 

investors know about the restatement. What role do tax authorities play? 

REFERENCES 

Gornik-Tomaszewski, S., and E. K. Jermakowicz. 2010. Adopting IFRS – Guidance for U.S. 

Entities Under IFRS 1. CPA Journal 80 (3): 12–18. 

Hager, S., and J.-M. Hitz. 2007. Immaterielle Vermögenswerte in der Bilanzierung und 

Berichterstattung – eine empirische Bestandsaufnahme für die Geschäftsberichte 

deutscher IFRS-Bilanzierer 2005 (Accounting for and Reporting of Intangible Assets 

– An Empirical Survey of German IFRS Accounts in 2005). Zeitschrift für 

internationale und kapitalmarktorientierte Rechnungslegung 2007 (4): 205–218. 

3 Assume that White’s financial year ends December 31 st . Also, assume that White only presents one prior 

period in their annual report. 

14

Appendix: 

Research Phase & 

Safety Profile & Efficacy & 

Safety & 

Pre-Clinical Phase Tests in Everyday 

Dosage Range Side Effects Effectiveness 

Healthcare 

(50 – 100 

(100 – 300 

(up to several 

Environment 

volunteers) 

patients) thousand patients) 

Research Development 

5 Million Euros 

(2001) 

Phase I 


(2002) 

Phase II Phase III 

Phase IV 


(2004) 

Authorization by FDA or EMEA 


(2006) 

Payment Structure 

Figure 1: Drug Development Process and Payment Structure (Own depiction based on information from FDA). 

15

Case Synopsis 

TEACHING NOTES 

Our study draws from an actual case of financial reporting enforcement in Germany. 

White Pharmaceuticals AG 4 

, a pharmaceutical company listed on the German stock 

exchange, enters a partnership with a U.S.-based company, Neurocentral, Inc. While White 

aims to profit from Neurocentral’s research and wants to access the American market, they 

provide their partner with funding that includes three forms of compensation: an upfront 

payment, two milestone payments and a lump-sum payment after all clinical studies are 

completed. Peter Schmidt, head of White’s accounting department, expenses all payments as 

they are made. A few years later, the German Financial Reporting Enforcement Panel (FREP) 

selects White Pharmaceutical AG for an examination. For the year 2006, they find that the 

lump-sum payment to Neurocentral, Inc. should have been recognized as it represents an 

acquisition of an intangible asset. White receives a notification stating that both income and 

intangible assets are understated by 55 million Euros which is the amount the company paid 

as a lump-sum. The case ends with Peter Schmidt thinking about the consequences of a 

possible restatement. 

Assignments 


1. (1) How are research and development costs treated (a) according to IFRS and 


(2) How are separately acquired intangible assets treated (a) according to IFRS and 


4 All names, dates and locations have been changed, as have the “characters” involved in the case. 

16

(3) Assess the payments made by White according to the criteria set out in IAS 38. Which 

payment would you have recognized in Peter’s place? 

2. (1) Why does capitalizing R&D seem to be an area of managerial discretion, although 

there are explicit rules of how to treat R&D? 

(2) Are there advantages (disadvantages) of capitalizing R&D? 

(3) Can you imagine why industries differ in their treatment of R&D? 

(4) Do you think that the accounting for research and development costs corresponds to 

the qualitative characteristics of relevance and reliability? 


(1) Can you think of advantages (disadvantages) of global accounting standards? 

(2) What is the impact on reporting entities that have to adapt their accounting? 

(3) Outline the boards’ approach concerning the convergence. Can you imagine possible 

hindrances to the convergence of R&D accounting? 


1. (1) What is the reasoning behind an institution that enforces financial reporting 

standards? 

(2) How are companies that are to be inspected selected? What does the German 

enforcement process look like? 

2. (1) What are White’s possible responses to the finding? Which way would you 

pursue? Why? 

(2) How do you think will investors react to the error finding? How should White 

Pharmaceuticals AG have best reacted to the examination by the FREP? 

17

(3) Who is to take responsibility for the restatements? Which role do you attribute to 

White’s auditors? 

(4) Imagine that Alex Muller asked Peter to appeal FREP’s finding. What would be his 

motivations to do so? In your answer, outline arguments that Peter could use to 

successfully appeal the decision. 

(5) Now, imagine that White’s CFO decided to accept the finding. How would Peter go 

about restating White’s financial statements? In your answer, refer to IAS 8 and 

examine what decisions Peter has to make. Also, consider how White best let 

investors know about the restatement. What role do tax authorities play? 

Solutions to the Assignments 

The following chapters present solutions to the assignments. For each set of questions, 

we first describe the educational objective of the requirements before we cover the actual 

solutions. Further instructional comments concerning the questions are written in italics. 


1. The first set of questions gives students the opportunity to study the treatment of research 

and development costs. At the same time, they identify one of the differences between US- 

GAAP and IFRS accounting. Answering the questions, students will review definition and 

recognition criteria of intangible assets while comprehending differences between internally 

run R&D and separately acquired research results. By assessing the main character’s actions, 

they are also encouraged to work out a well structured approach to apply managerial 

judgment. Solutions to the first set of questions are partly presented in the case itself. Thus, 

students are guided along the questions and are introduced to the key issue of the case study. 

18

Solutions: 

(1) (a) For intangible assets, IAS 38.11-.24 set definition (identifiability, control, future 

economic benefits) and recognition criteria (probability of future economic benefits, reliable 

measurement of costs). 

However, the question refers to the treatment of R&D expenditures. Therefore, the 

correct answer can be found in IAS 38.54-.64. According to these paragraphs, intangible 

assets arising during a research phase are not recognized. All costs shall be expensed when 

incurred. Intangible assets that arise in the development phase are recognized if the following 

can be demonstrated by the entity: 

- Technical feasibility of completing the asset, 

- Intention to complete the asset, 

- Ability to use or sell the asset, 

- How the asset generates probable future economic benefits, 

- Availability of resources to complete the asset, and 

- Ability to measure costs attributable to the asset reliably (IAS 38.57). 

(b) When accounting according to US-GAAP, SFAS No. 2 / ASC 730-10 provides the 

background for research and development costs. Entities are required to expense all costs 

associated with research and development as these costs are incurred. Specifically, 

SFAS No. 2, par. 11 / ASC 730-10-25-2 lists elements of costs that are to be identified with 

R&D activities and are subsequently expensed. The FASB argues that R&D projects always 

involve a high degree of uncertainty which is why there is no indication for a creation of an 

economic resource. Even if an entity expects future benefits from the R&D, it remains 

questionable for the FASB how these could be measured reliably. In addition, the standard 

setter does not acknowledge a causal relationship between costs and benefits. 

19

Exceptions to this rule are most notably intangible assets purchased from others (see 

solutions to next question for more details). In addition, ASC 730-10-60 contains further 

items that are linked to R&D but include guidance different from ASC 730-10. These items 

include, on the one hand, design and development costs for products to be sold under long- 

term supply arrangements (EITF 99-5 / ASC 340-10), costs for the development of websites 

(EITF 00-2 / ASC 350-50) and costs for computer software (SFAS No. 86 / ASC 985-20). 

(2) (a) Students should refer to IAS 38.25-.30 to answer this question. In a separate 

acquisition of an intangible asset, the price paid for the asset reflects expectations concerning 

future economic benefits embodied in the asset. Although timing or the amount of the inflow 

may be unsure, the entity still expects economic benefits from acquiring the asset. Otherwise 

the entity would not have spent money on the acquisition. Also, if the price paid is in the 

form of cash or other monetary assets, costs of the separately acquired intangible can be 

measured reliably. Thus, recognition criteria are fulfilled and the intangible asset is 

recognized on the balance sheet. This is particularly the case if the intangible is acquired in a 

business combination. 

(b) Instructors may want to discuss the details of the US-GAAP requirements with the 

students. They may especially focus on the alternative-use-criterion and its abandonment due 

to the convergence of SFAS No. 141 with IFRS 3. 

An entity that prepares their financial statements according to US-GAAP recognizes 

separately acquired intangible assets on their balance sheet in accordance with 

SFAS No. 142, par. 9 / ASC 350-30-25-1. If the R&D is acquired as part of a business 

combination, in-process research and development is also capitalized (SFAS No. 141(R) / 

ASC 805). Prior to the issuance of SFAS No. 141(R), the acquiring entity had to apply an 

alternative-use-criterion that prohibited the entity to capitalize in-process R&D if the research 

20

and development did not have alternative future use (SFAS No. 141 and FIN 4). However, 

due to the convergence of accounting standards, SFAS No. 141 was revised in 2007 and 

adopted the requirements of IFRS 3. Thus, current US-GAAP standards require an entity to 

capitalize all acquired research and development assets regardless of whether these assets can 

be used alternatively in the future. Subsequent to the initial recognition, acquired in-process 

R&D is considered indefinite-lived until the R&D is completed or abandoned (EITF 09-2). 

(3) This part gives students the opportunity to apply the results of part (1) and (2). Students 

should use precise and logical argumentation concerning the treatment of the payments in 

order to base their judgment of the transaction on a well-structured and logical assessment. 

As the case is constructed to present a transaction that is open to managerial judgment, there 

is not one solution to this question. Instructors may also discuss what to do if IFRS lacks 

regulation, i.e. point students towards the application of IAS 8.7-.11. 

The key issue concerning the payments made to Neurocentral, Inc. is whether White 

Pharmaceuticals AG can assess the payments as an outsourcing of R&D. In that case, the 

payments may be expensed. However, if White acquires an intangible asset, the payments 

would have to be recognized according to IAS 38.25-.26. In the following, we present an 

analysis of the three payments: 

(i) Upfront Payment: 

The upfront payment of five million Euros should be expensed regardless of how the 

payment is interpreted. If the transaction is considered an outsourcing of R&D, the payment 

should be assessed as if the research was undertaken by White’s research team. Thus, the five 

million Euros represent costs that occurred in the research phase. According to IAS 38.54, 

such costs are to be expensed when incurred. 

21

In addition, the transaction may hardly be assessed as an acquisition of an intangible 

asset. While an ex-post-assessment of the payment may yield the conclusion that the five 

million Euros represented expectations concerning future economic benefits, an evaluation of 

the research at the time of the payment could hardly trigger a capitalization of the payment. 

When the payment was made, it was difficult for both White and Neurocentral to assess 

whether the research would provide a prototype for a drug that could subsequently be tested 

in clinical studies. Although White had acquired all rights to the research performed, one 

could hardly argue that the company actually acquired an asset. 

As IAS 38 does not set out rules concerning the treatment of research and 

development arrangements, Peter could have followed IAS 8.12 which encourages 

management to consider pronouncements of other standard setters if the IFRS lack 

regulation. Following this directive, Peter may have found EITF 07-3 / ASC 730-20-25-13f. 

which require an entity to defer and capitalize nonrefundable advance payments in research 

and development agreements. ASC 730-20-35-1 describes the subsequent measurement of 

such payments and regulates that they should be charged to expense as the services are 

performed. In fact, the (now superseded) EITF 07-3 specifically includes a reference to 

IAS 38. In White’s case, the payment was made in 2001 which was also when the research 

phase was completed. Thus, taking into consideration US-GAAP could have provided Peter 

with a solid argumentation for his treatment of the upfront payment. 5 

(ii) Milestone Payments: 

Both milestone payments are similar in nature which is why we assess the treatment 

of both payments as if they were one. If the transaction is considered an outsourcing of R&D, 

the payments correspond to costs incurred in the development phase of an internal project. In 

this case, the company has to assess the six criteria laid out in the solutions to question (1)(a). 

5 

Note that EITF 07-3 was only issued in 2007, while the upfront payment was made in 2001. However, we 

refer to this EITF to provide a comprehensive picture of R&D accounting. 

22

For a pharmaceutical company, the success of a developed drug depends on the approval by 

the corresponding agency (e.g. FDA). Thus, it has become common practice in the industry to 

only recognize costs incurred after official approval. This policy takes into account that an 

agency might deny approval so the drug will not be marketable. In addition, beginning the 

clinical studies cannot be seen as a reliable indicator that a drug will eventually be brought to 

the market. During the course of the studies, potential implications may arise which could 

nullify any launch plans. These aspects lead pharmaceutical companies to negate the 

probability of future economic benefits and the technical feasibility of completing the 

intangible asset before an official approval has been received. This reasoning is also applied 

by White’s CFO which is why Peter expenses the two milestone payments. 

On the other hand, if the transaction is interpreted as an acquisition, a case could also 

be made for a capitalization of the two milestone payments. White Pharmaceuticals AG 

receives all rights to the development in progress and only transfers the money once the 

phases have been completed successfully. Thus, with the ongoing development efforts the 

probability increases that Neurocentral, Inc. creates a marketable drug and that White 

receives an intangible asset for their payments. Thus, the two milestone payments could also 

be interpreted as a compensation for the developed transdermal patch to which White 

receives, i.e. acquires, all rights. This interpretation is also indicated in the letter by the FREP 

that White receives at the end of our case. 

(iii) Lump-Sum Payment: 

Mr. Muller’s interpretation of the lump-sum payment follows the one set out for the 

milestone payments. When looking at the R&D as if it were conducted in-house, the lack of 

approval by FDA/EMA would justify an expense charge of the 55 million Euros. However, 

the argumentation used by the FREP seems more reasonable. They argue that the lump-sum 

was paid to acquire an intangible asset. Although the patch still lacks official approval, White 

23

had filed for it and it seems like the approval is only a legal formality. In addition, White had 

received all rights to the R&D performed in exchange for the payment which constitutes an 

acquisition of an intangible asset. Also, what White needs to consider is the IASB’s intention 

in issuing IAS 38.25. The standard does not require an entity to apply the same criteria to an 

acquired intangible asset that are applicable to internal R&D. Instead, the standard postulates 

that every acquisition of an intangible asset results in a capitalization. White did acquire the 

rights to research and development performed by Neurocentral and should therefore have 

capitalized the costs for it. 

Overall, we conclude that White’s treatment of the upfront payment can be supported. 

While the expense charges of both milestone payments seem questionable, the lump-sum 

payment should have been capitalized. The key issue concerning the payments is whether the 

transaction can be assessed as an outsourcing of R&D. Unlike White, we prefer to assess the 

transaction as an acquisition because, prior to the payments, the rights to the research 

performed are with Neurocentral while, in the end, they lie with White. However, it is our 

intention to present a case with potential for discussion and we encourage instructors to 

discuss the transaction extensively with students. This provides students with a good idea of 

what managerial discretion and professional judgment is. 

2. The second set of questions introduces students to the concept of accounting choices and 

accounting policies. Students will learn that some accounting standards leave room for 

discretion. They should realize that there is no “true” income and that published income of a 

company is not the one income but depends on different choices taken by management. 

Students should be aware that taking advantage of these choices is part of managerial 

judgment and not – as some students may think – accounting fraud. We also want students to 

realize that it is sometimes difficult for companies to apply the criteria given by accounting 

24

standards. The second question deals with an analysis of an accounting choice. Students will 

learn that a mere choice between recognizing and expensing R&D has an impact on both 

balance sheet and income statement. Next, we aim to discuss the issue of industry practices of 

which most students have heard about in an accounting context. But, usually, they are not 

aware of what this concept means, why it exists and how practices are set. Therefore, the 

question aims at giving students a clearer understanding of the issue. Finally, we want 

students to consider the current rules of IAS 38 against the background of the qualitative 

characteristics set out in the Framework. Students should evaluate whether IAS 38 is 

consistent with the requirement of relevant and reliable accounting figures. 

Solutions: 

(1) IAS 38 requires a reporting entity to recognize intangible assets arising from development 

if a number of criteria set in IAS 38 is fulfilled. These criteria have to be met cumulatively 

and seemingly create an accounting choice because an entity can utilize several parameters to 

fall short of demonstrating the necessary requirements. For example, an entity can state that it 

does not have the intention to complete the intangible asset. Leaving this much room to 

interpretation, the standard introduces more of an option than a rule of when to recognize 

intangible assets. While usually an accounting choice is to be applied consistently, the list of 

criteria in IAS 38 needs to be fulfilled for each R&D project which results in the possibility 

to “choose” recognition or expense on a case-by-case-basis. 

(2) Students should be made aware that IFRS requires an entity to apply an accounting 

principle consistently. Although R&D expenditures are an example of managerial judgment 

on a case-by-case-basis, an entity is normally expected to apply the same principle over time. 

Therefore, the instructor should emphasize that an accounting choice cannot as easily 

25

eversed as students sometimes imagine. In addition, our answer just gives an overall 

description of the effects which do not necessarily represent the case of White 

Pharmaceuticals AG or the effect that a single capitalization vs. expenditure choice has on a 

company. However, students should be made aware of the incentives such a choice creates 

but they also should not overestimate the effect. 

“Choosing” between capitalizing development costs and expensing them as they incur 

has the following implications: Recognizing an intangible asset reduces expenses for the year 

and results in a higher income. At the same time, the entity’s assets increase as well as its 

retained earnings which results in a higher equity position. As an overall effect, – depending 

on the amount at stake – the company’s leverage may reduce which gives the company a 

better position to raise additional capital. Also, higher income may be an incentive for 

executives if their compensation is based on earnings. On the other hand, if a company 

“chooses” to expense the costs as they are incurred, the effects are vice versa (lower income 

as well as lower total assets). 

(3) The concept of industry practice arises from the fact that companies belonging to the 

same industry face (mostly) the same regulatory requirements and can thus be compared 

more easily. This becomes apparent when looking at the industry at stake in the case study. 

The pharmaceutical industry argues that the success of their research and development 

depends on the regulatory approval of certain agencies (e.g. EMA in Europe, FDA in the 

U.S.). Therefore, they treat all costs prior to the approval as research expenses. These costs 

represent the major part of R&D expenditures in the pharmaceutical industry which is why 

the industry has the lowest capitalization ratio of the surveyed industries. The financial 

services industry, on the other hand, does not have these regulatory restrictions and most of 

their R&D revolves around new software applications that can be recognized as intangible 

26

assets right away. This example shows that the primary reason for the emergence of industry 

practices is comparability. As a consequence, financial analysts compare accounting choices 

and accounting figures within an industry because they assume that the industry presents the 

best benchmark for a company. If a company deviates from the benchmark, analysts look for 

explanations. In the case of R&D, a possible explanation for a higher capitalization ratio may 

be that a company has either reduced their expenses or they have finalized more products. 

(4) The IASB Framework constitutes four qualitative characteristics that financial statements 

are to fulfill: understandability, relevance, reliability, and comparability. The accounting for 

research and development under IFRS uses a set of criteria (IAS 38.57) that needs to be 

fulfilled for a capitalization of development costs. As we laid out above, managers view R&D 

accounting as accounting choice on a case-by-case-basis. This practice encourages a 

discussion on the relevance and the reliability of capitalized R&D items. 

According to F.26, users of financial statements need relevant information for their 

decision-making. Information is relevant “when it influences the economic decisions of users 

by helping them evaluate past, present or future events or confirming, or correcting, their past 

evaluations.” Thus, information in financial statements should have a predictive and a 

confirmatory role. Pharmaceutical companies depend heavily on the success of their research 

and development projects. While their current operating performance is a result of past 

success in R&D, their future operating performance is determined by their current R&D 

success. A company’s research and development activities are, thus, taken as an indicator of 

future performance and R&D expenditure is seen as a proxy for an entity’s research project 

pipeline. Following this argumentation, R&D costs are key information in assessing 

pharmaceutical companies’ performance. Therefore, this item can be seen to fulfill the 

27

predictive role of accounting information to a great extent resulting in a high relevance of 

R&D costs for pharmaceutical companies. 

Reliability, on the other hand, is defined in F.31. Information is reliable “when it is 

free from material error and bias and can be depended upon by users to represent faithfully 

that which it either purports to represent or could reasonably be expected to represent.” While 

the above-identified relevance of R&D costs supports their capitalization, the reliability 

criterion challenges recognition of research and development expenditure. The Framework 

further reads in F.32 that “information may be relevant but so unreliable in nature or 

representation that its recognition may be potentially misleading.” This seems to be the case 

for research and development costs because not all R&D will lead to future economic 

benefits. The IASB acknowledged this fact because they require an entity to demonstrate a 

number of criteria before recognizing R&D. With the use of these criteria, the IASB aimed to 

require companies to only capitalize those costs that have a predictive value for investors, i.e. 

that indicate future economic benefits. However, requiring a company to only recognize costs 

after the entity deems the criteria fulfilled leaves out all costs that were incurred up to this 

point. Nevertheless, the costs incurred in the research and development phase, in hindsight, 

also have a predictive role and encompass part of the intangible asset that the company 

created. Thus, research and development costs can be seen as highly relevant for investors but 

not reliable enough to be capitalized. 


After having discussed a particular issue that is accounted for differently under IFRS 

and US-GAAP, students are to look at the big picture of uniform global accounting standards. 

Students’ first impression will quite possibly result in a positive opinion as they will cite an 

increase in comparability between companies. However, our questions encourage students to 

28

also think critically about uniform accounting standards and to assess the consequences of 

converging financial reporting rules. 

Solutions: 

(1) Students will most likely not come up with a lengthy set of advantages and disadvantages 

as set out in Table 2. However, we believe that it is helpful for students to critically reflect on 

what they have learned during the semester. Thus, we suggest discussing Ball (2006)’s 

reasoning in detail with the students. 

For the solutions, we refer to Ball (2006) who presents pros and cons of IFRS to 

investors. In addition, Hail, Leuz and Wysocki (2010) review conceptual underpinnings and 

conduct an economic analysis of the potential adoption of IFRS in the U.S. 

Advantages Disadvantages 

(1) IFRS as “high quality“ standards (1) Fair value accounting (if volatility in 

earnings is due to “model noise” or 

manipulation) 

(2) More accurate valuation in equity 

markets 

(2) Implementation issues (applying 

standards correctly vs. incentives to 

manipulate) 

(3) Reduced costs of being informed (3) “Global Brand Name” (quality 

differences between countries) 

(4) Reduced costs of processing financial 

information 

(5) Increased comparability and reduced 

information costs and information risks 

(6) More efficient contracting in debt 

markets 

(7) Better corporate governance (due to 

greater transparency) 

(4) “Free Rider” problem (no costs for lowquality 

countries to use global “brand” 

IFRS) 

(5) Competition among accounting systems 

is healthy (e.g. for innovation) 

(6) Risks for IASB to become a politicized 

and bureaucratic body 

Table 2: Ball (2006)’s advantages and disadvantages of IFRS to investors. He refers to advantages (2) through 

(5) as direct benefits, while (6) and (7) are indirect ones. Concerning disadvantages, he names (1) and 

(2) as immediately relevant, whereas (3) through (6) are longer term concerns. 

29

(2) The impact of an adoption of IFRS on a reporting entity is twofold. On the one hand, both 

equity and debt investors need to adapt their assessment of the company’s accounting figures. 

They have to adjust valuation methods and also have to become accustomed to increased 

volatility in earnings (e.g. compared to German commercial code). Thus, the entity may have 

to increase their communication efforts to avoid funding problems. The second impact of an 

IFRS adoption is that the company needs to adjust their internal systems and procedures. The 

entity’s accounting staff has to be able to properly apply IFRS and has to be trained to do so. 

Software applications also need to be updated to reflect the change to the new accounting 

regime. Less obvious (to students) is the adjustment of internal control systems. Project 

calculations as well as performance evaluations are often based on accounting figures and 

therefore need to be adjusted. Also, management compensation may have to be modified to 

fairly reflect the change. Thus, as an adoption of IFRS results in high costs for the reporting 

entity, benefits of reporting according to IFRS need to be prevalent when considering a 

change. 

(3) Before discussing the convergence of R&D accounting, we want to give a short overview 

of the convergence process: In September 2002, both FASB and IASB agreed to work 

together with the aim to both improve IFRS and US-GAAP as well as eliminate differences 

between the accounting systems. In their so-called Norwalk Agreement, the boards agreed on 

the goal to develop “high-quality, compatible accounting standards that could be used for 

both domestic and cross-border financial reporting.” In addition, they set out that they would 

(a) undertake short-term projects to remove smaller differences between the systems, (b) 

remove other differences through the mutual undertaking of projects, and (c) continue their 

work on joint projects. In February 2006, the boards issued a Memorandum of Understanding 

(MoU) that included a number of short-term convergence topics that the boards hoped to 

30

achieve significant progress on by 2008. In September 2008, the FASB and the IASB updated 

their MoU and agreed on milestones to be achieved on a number of projects by 2011. In June 

2010, the boards issued a progress report on the convergence project in which they also 

published a modified work plan that prioritizes the major projects mentioned in the MoU. 

Thus, the boards aim to increase their focus on those projects that they deem most urgent. 

As was set out earlier, the treatment of R&D according to IFRS differs from the US- 

GAAP requirements. R&D accounting was identified by the boards as one of the short-term 

convergence project as they considered the gap in the treatments narrow enough to close in a 

short period of time. Thus, R&D accounting was included in the MoU as issued in 2006. 

However, after several rounds of discussions, the boards decided not to add the project to the 

active agenda. What’s more, R&D accounting was not mentioned anymore as a part of the 

modified work plan which meant that the project was not prioritized. Thus, the boards did not 

expect to agree on converging R&D accounting in the near future. 

The main reason for this development seems to be that the differences in R&D 

accounting were only perceived to be small, while they, in fact, addressed a fundamental 

difference between IFRS and US-GAAP. While the former system is generally considered 

principles-based, the latter is described as rules-based. The main characteristic of a principle- 

based regime is that a limited number of standards give guidelines on how to assess 

transactions. Therefore, the principles cannot provide an impermeable set of requirements but 

rely on managerial judgment. On the other hand, a rules-based system issues guidance on a 

case-by-case basis which results in a high number of standards and, thus, relatively tight 

regulation. 

Prior to issuing SFAS No. 2, R&D accounting in the U.S. was also based on 

principles similar to the ones currently in use by IAS 38. Entities were to capitalize their 

research and development costs if a certain set of criteria was fulfilled. This procedure was 

31

considered part of the matching principle that wanted to defer costs of an R&D project until 

revenue was received. However, this practice led to abuse as every company seemingly 

applied the criteria in a different way which resulted in a factual accounting choice 

concerning the capitalization of R&D. Thus, the FASB aimed to reinstitute the comparability 

requirement and issued SFAS No. 2 in 1974. This standard established the still valid rule that 

prohibits companies from recognizing R&D costs. In the course of the convergence project, 

the FASB has been considering a return to the pre-SFAS No. 2 era and to a principles-based 

R&D accounting standard. The main hindrance to making progress seems to be that the 

FASB considers the rules set out in IAS 38 too vague. Although having considered 

adaptations of the IFRS rules, the boards could not agree on amendments that would make 

IAS 38 more operational. Thus, for the FASB, the fear to re-introduce a principle-based R&D 

standard that, in their point of view, cultivates abuse currently seems too high for a successful 

convergence project. Nevertheless, Bennett, Bradbury and Prangnell (2006) examine the 

differences between research and development standards in the rules-based US-GAAP 

regime and the principles-based IFRS system and find that the distinction is not as severe as 

commonly perceived. In their study, the authors acknowledge a certain need for an agreement 

of the weightings given to qualitative characteristics. However, they find fewer differences 

between the standards than expected which could well serve as an incentive for IASB and 

FASB to renew their efforts for the convergence of R&D accounting. 


1. Most students have merely heard about the enforcement of accounting standards but 

generally do not have profound knowledge of how enforcement is organized or executed. 

Thus, these questions introduce students to the concept and give students the opportunity to 

reflect on the issue. They should realize that in some cases an additional examination is 

32

necessary although financial statements are reviewed by independent auditors. Also, we aim 

to demonstrate how the enforcement is organized and how the FREP selects companies that 

will be inspected. Thus, students will receive an overview of the enforcement process. 

Solutions: 

(1) In 2005, the German Financial Reporting Enforcement Panel (FREP) conducted their first 

examinations with the aim to restore investor confidence in companies’ financial statements 

and equity markets as a whole. The additional institution that checks and controls a 

company’s financial reporting aims to increase compliance with accounting standards. 

Triggering events for the creation of FREP were accounting scandals like Enron and 

WorldCOM. These scandals showed that, in spite of reviews by auditors, companies could 

still manipulate their financial statements. As a result, many countries introduced new ways 

to further inspect accounting as well as auditing (e.g. Sarbanes-Oxley-Act). In addition, 

enforcement institutions also aim to prevent mistakes by publishing error findings as well as 

recommendations. Thus, they want to increase management’s and auditors’ awareness of 

common errors and mistakes in certain accounting areas. 

The instructor may also guide students through discussions about the “value” of 

reliable accounting figures for functioning and efficient capital markets. This can enable 

students to see the big picture of reliable accounting figures. 

(2) In Germany, the enforcement was designed to reflect characteristics of both a sovereign 

authority as well as a privately held institution. A two-step-process was implemented that 

includes the private FREP who conducts the primary investigation and the sovereign 

Financial Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufsicht, BaFin) 

who takes over in case FREP’s investigation fails. Companies that will be examined are 

33

selected by one of three ways: Either they are part of a random sample by the FREP or there 

are indications that a company has made accounting errors or the BaFin requests an 

investigation. The selection process shows that investigations are run both proactively as well 

as reactively. Once a company is chosen, the enforcement can develop in different ways. 

Figure 2 shows how the two steps of the German enforcement process are organized. 

Random Sampling 

(proactive) 

No Findings 

Report to BaFin and 

Company 

End of 

Examination 

Indications for Accounting 

Errors (reactive) 

Examination by Financial Reporting Enforcement Panel (FREP) 

Error Findings 

Explanatory Statement by FREP / 

Time for Company to Comment on Findings 

Company accepts 

findings 

Report to BaFin and 

Error Publication 

Doubts concerning accurateness of findings or conduct 

of examination 

No Findings 

Report to Company 

End of Examination 

Company accepts 

findings 

Error Publication 

Examination by BaFin 

Error Findings 

Company does not 

accept findings 

Company does not 

accept findings 

Figure 2: Enforcement Process in Germany (Zülch and Hoffmann, 2010). 

Requested by BaFin 

(proactive) 

Company refuses to 

cooperate 

Referral of Examination to BaFin 

Company refuses to 

cooperate 

Higher Regional Court Tribunal (Oberlandesgericht) 

Frankfurt / Main 

34

Note that although this case describes the enforcement process in Germany this 

section can easily be adapted to regulations in other countries. Thus, in the following we give 

a short overview of the enforcement processes in the U.S. and the UK. We choose these two 

countries for an overview as both models were discussed extensively in Germany prior to 

establishing the FREP. 6 

In addition, the two models define both ends of the range of 

organizing an enforcement institution: While the SEC is a governmental agency and, thus, 

has legal power to issue directives, UK’s FRRP is a private organization which relies heavily 

on public pressure. 

Concerning the approach the U.S. takes on regulating financial reporting, Zeff (1995) 

gives a great overview. The Securities and Exchange Commission (SEC) was established in 

1934 with a wide range of power for enforcement activities. Within the SEC, there are three 

institutions that handle enforcement of accounting standards: the Division of Corporation 

Finance (DCF), the Division of Enforcement, and the Office of the Chief Accountant. The 

DCF reviews registration documents of first-time issuers (i.e. when stock is initially sold) and 

– on an ongoing basis – of listed companies who are under the jurisdiction of the SEC. If the 

DCF raises questions concerning the financial statements of a company, they issue a “letter of 

comment” (or deficiency letter) to the company under scrutiny. In case the issue is not 

resolved, the Office of the Chief Accountant takes up the matter and makes a final judgment. 

If the company does not accept the decision, the investigation may be referred to the Division 

of Enforcement who carries out their own investigation. The company, then, may become 

subject to injunctive or administrative action (“cease and desist”) that requires the company 

to restate their financial statements. Also, the Commission may choose to issue a “stop order” 

which hinders the registration statement from becoming effective. Other sanctions include 

6 Additional discussions on enforcement are, for example, provided by Berger (2010) who gives an overview 

of accounting enforcement in Europe. In addition, Brown and Tarca (2007) compare the British and the 

Australian approach to enforcement. 

35

monetary penalties and a publication in the SEC’s Accounting and Auditing Enforcement 

Releases. In addition to this proactive examination, the Division of Enforcement carries out 

reactive investigations if they receive evidence of potential violations from other sources (e.g. 

investors or media reports). What is worth noting is that most examinations go about in 

confidence. Only when registration statements are delayed or restated does the public take 

notice of the examination. 

Contrary to the approach taken in the U.S., the enforcement process in the United 

Kingdom is carried out by a private body. The Financial Reporting Review Panel (FRRP) is 

part of the Financial Reporting Council, an independent accounting regulation body. The 

panel was established in 1990 and reformed with the Companies Act 2004 and 2006. Prior to 

the reform, the FRRP carried out their investigations only reactively, i.e. they responded to 

complaints from the public or the press. Also, the panel started an inquiry when auditors 

issued a qualified opinion on financial statements. In addition, only financial statements 

(“statutory annual accounts”) issued by companies registered in the UK were subject to the 

panel’s investigations. With the reform, the FRRP received broader powers and now also 

examines directors’ reports as well as interim reports. The review was likewise widened to 

include a proactive aspect, i.e. the FRRP now also reviews statements on a continuing basis. 

The panel chooses sectors of the economy that have been experiencing an increased level of 

pressure or that are subject to complex accounting issues. In addition, the panel applies a risk 

model to identify companies that may be more likely to experience accounting problems. 

Finally, a topical selection of accounting issues may also lead to investigations. For sanction 

mechanisms, the FRRP solely relies on public pressure. If the panel’s investigation results in 

a finding, the error is made public. In case the company under scrutiny does not accept a 

finding, the FRRP may refer the case to courts. However, the panel itself does not have the 

36

power to sanction a company, e.g. by levying a fine, and counts on the loss of reputation that 

is associated with the publication of an error finding. 

2. While the last questions presented conceptual considerations of the enforcement of 

accounting standards in Germany, this task expects students to analyze the case study based 

on the theoretical background. They are required to assess implications of the examination 

and demonstrate their ability to evaluate possible outcomes. At the same time, students can 

discuss pros and cons of White Pharmaceuticals’ and Peter’s behavior while presenting 

recommendations for them. Students should also be encouraged to reflect on aspects of crisis 

management. 

Solutions: 

(1) Possible responses can be derived from Figure 1. White Pharmaceuticals AG can either 

accept or oppose the error finding. Acknowledging the error finding would lead to a 

publication of the finding in the German Federal Gazette. If they opposed the finding, the 

examination would be referred to BaFin who conducts their own examination. Again, White 

would have the option of accepting or opposing a finding. If the company still did not accept 

the finding, the final decision would be taken by the Higher Regional Court Tribunal 

(Oberlandesgericht) in Frankfurt / Main. 

This summary already implies that the process uses a high level of corporate resources 

if a company wants to assert their position. Thus, a company needs to assess their success rate 

before they choose to object a finding by the FREP. The case presents strong indications that 

White did indeed make a mistake in expensing the lump-sum payment. Also, both BaFin as 

well as the court are generally not interested in weakening FREP’s position. A reversal of the 

finding would not only undermine the FREP’s standing but would also lead to a higher 

37

number of oppositions by companies. These are issues that White needs to consider before 

answering FREP’s letter. All in all, admitting that they made a mistake and publishing the 

error finding seems to be White’s best option. 

(2) While discussing this question, the instructor may address the fact that a company most 

likely will encounter situations in which employees have made mistakes. Thus, students 

should realize that their job may require them to mitigate potential damages but, 

nevertheless, to accept consequences from mistakes. 

For investors’ reactions to a publication of error findings, we refer to the extensive 

research that has been conducted on this subject. While negative market returns for 

restatements have been observed early (e.g. Feroz, Park and Pastena 1991), error findings 

have further consequences. The reputation of the company suffers as well as that of its 

managers (Desai, Hogan and Wilkins 2006). However, Hennes, Leone and Miller (2008) note 

that negative market responses are stronger if restatements result from accounting 

irregularities (i.e. intentional misstatements) compared to restatements because of mere errors 

(i.e. unintentional misstatements). Similar results were found recently by Ernstberger, Hitz 

and Stich (2010) who specifically investigate error findings in Germany. They report 

negative abnormal returns around the announcement date that increase with the severity of 

the error(s). On the other hand, they provide evidence that unintentional error(s) appear to 

reduce the negative returns. Based on these research findings, White Pharmaceuticals AG 

will most likely experience negative market responses following the publication of the error 

finding. White should therefore increase their communication with investors and determine 

how the error came about. They should disclose what actions the company has already taken 

or will take in order to prevent further mistakes. This kind of release might help to mitigate 

negative effects of the publication. 

38

Concerning the second part of the question, White Pharmaceuticals AG should indeed 

have been more open about the examination. White’s CFO, Alexander Muller, should have 

assigned a team to the examination and not dismissed the whole issue. Instead, he should 

have given the team top priority in working on this issue. It is part of his job as CFO to 

inform both CEO and the board about the examination as well as to be in close contact with 

FREP’s auditors concerning the investigation. In addition, White should have communicated 

openly with investors from the start. The lack in communication might signal to investors that 

White has something to hide and that they do not believe in their accounting systems. 

Investors may also wonder if the investigation was a result of a random sampling by the 

FREP or if there were indications for errors and the FREP reacted to these. Being silent about 

the examination may therefore increase the damage to White Pharmaceuticals’ reputation. 

(3) Students often do not seem to realize whose responsibility the conformity of financial 

statements to IFRS is. With this question, we intend to resolve that issue and also discuss the 

role of auditors in the context of the case study. As our case is constructed to introduce 

students to the concept of managerial judgment, we refrain from calling the error finding a 

serious misapplication of IFRS. However, some instructors may feel that the error finding is 

more severe and that the auditors should have known better. They may want to discuss 

possible sanctions that institutions like the German Wirtschaftsprüferkammer (WPK) or the 

American Public Company Accounting Oversight Board (PCAOB) could impose on White’s 

auditors. 

First of all, it should be noted that a company’s management is responsible for the 

preparation of the financial statements. Therefore, it is also their responsibility to ensure that 

appropriate measures are taken to prevent accounting errors or fraud. Auditors, on the other 

hand, only express an opinion on companies’ financial statements. They are obliged to 

39

conduct their audit in a way that misstatements which materially affect a company’s financial 

statements are discovered with reasonable assurance. Although auditors examine financial 

statements, they do not provide a full audit or guarantee that the statements are flawless. 

Auditors are also not assumed to discover fraud. 

Thus, the responsibility for the expense charge of the lump-sum payment lies with 

White’s management. However, as White discussed the transaction with their auditors and as 

the auditors confirmed the accounting for the payment, White’s position towards the FREP 

may be stronger and they may consider opposing the error finding. On the other hand, White 

could also argue that the auditors did a poor job in their assessment and consider a change of 

auditors. This could also be a signal to investors that White takes precautions to prevent 

future accounting mistakes. 

(4) Alex Muller’s motivation to appeal the FREP’s error finding would be that he is 

convinced about his assessment of the transaction. He may see the transaction as 

controversial enough to expect a revision of the finding by BaFin. In addition, he may regard 

an appeal as a chance to avoid the negative publicity associated with the publication of the 

finding. As we have laid out above, research has shown that the consequences of a 

restatement are quite severe. Alex Muller may want to grasp the slightest chance to avoid this 

outcome. What might also play a role is that he confirmed the accounting treatment himself. 

If White’s CEO or shareholders want to see a reaction to the error finding, Mr. Muller’s job 

may be at stake as well. 

In his answer, Peter would have to raise valid points to challenge FREP’s finding. The 

key issue of the response would revolve around whether or not the transaction was an 

acquisition. Peter could argue that White acquired all rights to the research performed with 

the upfront payment. However, as White did not acquire something that satisfied the 

40

definition of an intangible asset, they did not have to capitalize the payment. As a 

consequence, the development activities undertaken by Neurocentral, Inc. after the upfront 

payment had been made would have to be evaluated as a rendering of services. Thus, both the 

milestone payments as well as the lump-sum payment were a compensation for the services 

undertaken by Neurocentral. Following this argumentation, Neurocentral just developed the 

drug to which White already held the rights. This outsourcing would have to be evaluated 

similar to R&D activities undertaken by White itself. Therefore, White would refer to the 

official approval by FDA/EMA for a possible capitalization. As this approval had not yet 

been received, White would not recognize costs for development activities carried out by 

their own R&D department. The same reasoning should hold for outsourced research and 

development and, thus, for the payments made to Neurocentral, Inc. 

(5) IAS 8 sets out criteria to select and change accounting policies, rules for revising 

accounting estimates and for correcting errors. IAS 8 aims at enhancing relevance and 

reliability of financial statements and at increasing comparability of financial statements over 

time and between entities. 

IAS 8 sets out rules for changes in accounting estimates which are defined as “an 

adjustment of the carrying amount of an asset or a liability, or the amount of the periodic 

consumption of an asset, that results from the assessment of the present status of, and 

expected future benefits and obligations associated with, assets and liabilities” (IAS 8.5). 

These changes in accounting estimates result from new information or new developments and 

are not to be confused with error corrections. Management carries out estimations that are 

based on the latest available, reliable information. At the same time, it becomes apparent that 

estimates often require revision if circumstances on which the estimates were based change. 

41

Thus, it is also obvious that revising an estimate does not relate to prior periods and is by 

nature not a correction of an error. Instead, revising an estimate is conducted prospectively. 

On the other hand, prior period errors are defined as “omissions from, and 

misstatements in, the entity’s financial statements for one or more prior periods arising from 

a failure to use, or misuse of, reliable information that was available when financial 

statements were authorized for issue and could reasonably be expected to have been obtained 

and taken into account in the preparation and presentation of those financial statements” 

(IAS 8.5). These errors can result from mathematical mistakes, incorrect application of 

accounting policies, oversights or misinterpretations of facts, and fraud. If financial 

statements include material errors or intentionally made immaterial errors, they do not 

comply with IFRSs. These errors are to be corrected retrospectively in the period of their 

discovery. Errors are corrected by restating comparative figures for all prior periods 

presented that were affected by the error. If the error occurred before the earliest prior period 

presented, the entity is to restate the opening balances of assets, liabilities and equity for the 

earliest prior period presented. 

When applying IAS 8 to their financial statements, White should note that the 

retrospective correction needs to be carried out in 2009 as the financial statements for this 

year have not yet been issued. According to IAS 8, a retrospective correction requires the 

entity to restate the comparative amounts for all prior periods presented that were affected by 

the error or, if the error occurred before the earliest prior period presented, to restate the 

opening balances of all affected assets, liabilities and equity for the earliest prior period 

presented. The latter case applies to White Pharmaceuticals AG because the misinterpretation 

occurred in the year 2006 and the company is assumed to only present one prior period in 

their annual report. Thus, the company has to restate the opening balances of all items 

affected for the comparative period (2008) in their annual report for the year 2009. In White’s 

42

case, these requirements mean that the entity needs to increase their amount recognized as 

intangible assets by 55 million Euros. Also, their retained earnings should be increased by the 

same amount. In addition, IAS 8 requires an entity to disclose the nature of the prior period 

error and, for each prior period presented, the amount of the correction for each line item and 

the amount of the correction at the beginning of the earliest prior period presented. White 

would have to present these disclosures in their annual report to let investors know the effect 

of the misinterpretation. 

The central decision that Peter has to make revolves around the subsequent 

measurement of the intangible asset. If White applies the cost model to their intangible assets, 

Peter needs to determine the useful life of the asset and the yearly amortization charges. If, 

however, White uses the revaluation model for their intangibles, Peter also needs to 

determine the fair value of the transdermal patch. Nevertheless, in calculating the fair value, 

Peter has to consider IAS 38.76, which prohibits a revaluation of intangibles that have 

previously not been recognized as assets. In addition to the fair value, Peter also has to 

calculate yearly amortization charges when using the fair value model. What’s more, Peter 

can also determine possible impairment losses that the transdermal patch may have been 

subject to. When considering the discretion potential laid out above, one has to realize that 

the net effect of recognizing the intangible asset three years after its acquisition may not be as 

severe as expected. 

When letting investors know, White needs to determine how much information they 

want to disclose. Considering the fact that the error correction was due to a misinterpretation, 

White may want to issue a press release covering the transaction and White’s motivation in 

detail. On the other hand, if a company committed something close to fraud, they probably 

choose a more restrictive investor communication strategy without disclosing many details on 

43

the transaction. Instructors who wish to cover this part more extensively may do so in class 

discussion. Issues to discuss include the pros and cons of disclosure “strategies”. 

Finally, White needs to consider the role of tax authorities when restating their 

financial statements. They should note that the retrospective error correction not only affects 

their taxes for the year of the correction but also for every year since the capitalization. Thus, 

the impact of Peter’s judgment potential concerning amortization charges and possible 

impairment losses also affects White’s tax bill. Therefore, Peter may wish to discuss these 

issues with White’s tax counselors to determine his discretion potential and to optimize their 

tax liability. 

REFERENCES 

Ball, R. 2006. International Financial Reporting Standards (IFRS): pros and cons for 

investors. Accounting & Business Research 2006 Special Issue 36: 5–27. 

Bennett, B., M. Bradbury, and H. Prangnell. 2006. Rules, Principles and Judgments in 

Accounting Standards. Abacus 42 (2): 189–204. 

Berger, A. 2010. The Development and Status of Enforcement in the European Union. 

Accounting in Europe 7 (1): 15–35. 

Brown, P. and A. Tarca. 2007. Achieving High Quality, Comparable Financial Reporting: A 

Review of Independent Enforcement Bodies in Australia and the United Kingdom. 

Abacus 43 (4): 438–473. 

Desai, H., C. E. Hogan, and M. S. Wilkins. 2006. The Reputational Penalty for Aggressive 

Accounting: Earnings Restatements and Management Turnover. Accounting Review 

81 (1): 83–112. 

Ernstberger, J., J.-M. Hitz, and M. Stich. 2010. Enforcement of Accounting Standards in 

Europe: Capital Market Based Evidence for the Two-tier Mechanism in Germany. 

44

Working Paper (available at: http://papers.ssrn.com/sol3/papers.cfm?abstract_id= 

1395729). 

Feroz, E. H., K. Park, and V. S. Pastena. 1991. The Financial and Market Effects of the 

SEC’s Accounting and Auditing Enforcement Releases. Journal of Accounting 

Research 29 (3): 107–142. 

Hail, L., C. Leuz, and P. Wysocki. 2010. Global Accounting Convergence and the Potential 

Adoption of IFRS by the U.S. (Part I): Conceptual Underpinnings and Economic 

Analysis. Accounting Horizons 24 (3): 355–394. 

Hennes, K. M., A. J. Leone, and B. P. Miller. 2008. The Importance of Distinguishing Errors 

from Irregularities in Restatement Research: The Case of Restatements and CEO/CFO 

Turnover. Accounting Review 83 (6): 1487–1519. 

Zeff, S.A. 1995. A Perspective on the U.S. Public/Private-Sector Approach to the Regulation 

of Financial Reporting. Accounting Horizons 9 (1): 52–70. 

Zülch, H. and S. Hoffmann. 2010. Rechtsprechung zum Rechnungslegungs-Enforcement in 

Deutschland – ein erster Überblick (Court Rulings Concerning Accounting 

Enforcement in Germany – A Preliminary Review). Deutsches Steuerrecht 2010 (18): 

945–950. 

45

HHL-Arbeitspapiere / HHL Working Papers 

105 Zülch, Henning; Detzen, Dominic (2010) 

Enforcing Financial Reporting Standards: The Case of White Pharmaceuticals AG 

104 Salewski, Marcus; Zülch, Henning (2010) 

Managerial Discretion in Accounting for Defined Benefit Obligations: An Empirical 

Analysis of German IFRS Statements 

103 Zülch, Henning; Salewski, Marcus (2010) 

Ermessensspielräume bei der Bilanzierung von Pensionsverpflichtungen: eine 

empirische Analyse deutscher IFRS-Bilanzierer 

102 Scherzer, Falk (2010) 

On the Value of Individual Athletes in Team Sports 

101 Wulf, Torsten; Brands, Christian; Meißner, Philip (2010) 

A Scenario-based Approach to Strategic Planning: Tool Description – 

360° Stakeholder Feedback 

100 Viellechner, Oliver; Wulf, Torsten (2010) 

Incumbent Inertia upon Disruptive Change in the Airline Industry: Causal Factors 

for Routine Rigidity and Top Management Moderators 

99 Wulf, Torsten; Meißner, Philip; Bernewitz, Friedrich Frhr. von (2010) 

Future Scenarios for German Photovoltaic Industry 

98 Wulf, Torsten; Meißner, Philip; Stubner, Stephan (2010) 

A Scenario-based Approach to Strategic Planning – Integrating Planning and 

Process Perspective of Strategy 

97 Wulf, Torsten; Stubner, Stephan; Blarr, W. Henning; Lindow, Corinna (2010) 

Erfolgreich bleiben in der Krise 

96 Wulf, Torsten; Stubner, Stephan (2010) 

Unternehmernachfolge in Familienunternehmen – Ein Untersuchungsmodell zur 

Analyse von Problemfeldern bei der Übergabe der Führungsrolle 

95 Zülch, Henning; Pronobis, Paul (2010) 

The Predictive Power of Comprehensive Income and Its Individual Components 

under IFRS 

94 Zülch, Henning; Hoffmann, Sebastian (2010) 

Lobbying on Accounting Standard Setting in a Parliamentary Environment – 

A Qualitative Approach 

93 Hausladen, Iris; Porzig, Nicole; Reichert, Melanie (2010) 

Nachhaltige Handels- und Logistikstrukturen für die Bereitstellung regionaler 

Produkte: Situation und Perspektiven

92 La Mura, Pierfrancesco; Rapp, Marc Steffen; Schwetzler, Bernard; Wilms, 

Andreas (2009) 

The Certification Hypothesis of Fairness Opinions 

91 La Mura, Pierfrancesco (2009) 

Expected Utility of Final Wealth and the Rabin Anomaly 

90 Thürbach, Kai (2009) 

Fallstudie sekretaria - Vom New Economy-Internet-Startup zum 

Old Economy-Verlagsunternehmen 

89 Wulf, Torsten; Stubner, Stephan; Blarr, W. Henning (2010) 

Ambidexterity and the Concept of Fit in Strategic Management – Which Better 

Predicts Success? 

88 Wulf, Torsten; Stubner, Stephan; Miksche, Jutta; Roleder, Kati (2010) 

Performance over the CEO Lifecycle – A Differentiated Analysis of Short and 

Long Tenured CEOs 

87 Wulf, Torsten; Stubner, Stephan; Landau, Christian; Gietl, Robert (2010) 

Private Equity and Family Business – Can Private Equity Investors Add to the 

Success of Formerly Owned Family Firms? 


Executive Succession and Firm Performance – the Role of Position-specific Skills 


Unternehmernachfolge in Familienunternehmen – Untersuchungsmodell zur 

Analyse von Problemfeldern bei der Übergabe der Führungsrolle 


Executive Departure Following Acquisitions in Germany – an Empirical Analysis 

of Its Antecedents and Consequences 

83 Zülch, Henning; Gebhardt, Ronny (2008) 

Politische Ökonomie der Rechnungslegung - Empirische Ergebnisse und kritische 

Würdigung des Forschungsansatzes 

82 Zülch, Henning; Löw, Edgar; Burghardt, Stephan (2008) 

Zur Bedeutung von IFRS-Abschlüssen bei der Kreditvergabe von Banken an 

mittelständische Unternehmen 

81 Suchanek, Andreas (2007) 

Die Relevanz der Unternehmensethik im Rahmen der Betriebswirtschaftslehre 

80 Kirchgeorg, Manfred; Jung, Kathrin (2007) 

User Behavior in Second Life: an Empirical Study Analysis and Its Implications for 

Marketing Practice 

79 Freundt, Tjark (2007) 

Neurobiologische Erklärungsbeiträge zur Struktur und Dynamik des 

Markenwissens 

78 Wuttke, Martina (2007) 

Analyse der Markteintrittsstrategien chinesischer Unternehmen in Mitteldeutschland 

am Beispiel von chinesischen Unternehmen im MaxicoM in Leipzig

77 La Mura, Pierfrancesco; Swiatczak, Lukasz (2007) 

Markovian Entanglement Networks 


Corporate Responsibility in der pharmazeutischen Industrie 

75 Möslein, Kathrin; Huff, Anne Sigismund (2006) 

Management Education and Research in Germany 

74 Kirchgeorg, Manfred; Günther, Elmar (2006) 

Employer Brands zur Unternehmensprofilierung im Personalmarkt : 

eine Analyse der Wahrnehmung von Unternehmensmarken auf der Grundlage 

einer deutschlandweiten Befragung von High Potentials 

73 Vilks, Arnis (2006) 

Logic, Game Theory, and the Real World 

72 La Mura, Pierfrancesco; Olschewski, Guido (2006) 

Non-Dictatorial Social Choice through Delegation 

71 Kirchgeorg, Manfred; Springer, Christiane (2006) 

UNIPLAN Live Trends 2006 : Steuerung des Kommunikationsmix im 

Kundenbeziehungszyklus ; eine branchenübergreifende Befragung von 

Marketingentscheidern unter besonderer Berücksichtigung der Live 

Communication. – 2., erw. Aufl. 

70 Reichwald, Ralf; Möslein, Kathrin (2005) 

Führung und Führungssysteme 


Is Profit Maximization the Social Responsibility of Business? Milton Friedman and 

Business Ethics 


Decision Theory in the Presence of Uncertainty and Risk 

67 Kirchgeorg, Manfred; Springer, Christiane (2005), 

UNIPLAN LiveTrends 2004/2005 : Effizienz und Effektivität in der Live 

Communication ; eine Analyse auf Grundlage einer branchen-übergreifenden 

Befragung von Marketingentscheidern in Deutschland 

66 Kirchgeorg, Manfred; Fiedler, Lars (2004) 

Clustermonitoring als Kontroll- und Steuerungsinstrument für 

Clusterentwicklungsprozesse - empirische Analysen von Industrieclustern in 

Ostdeutschland 

65 Schwetzler, Bernhard (2004) 

Mittelverwendungsannahme, Bewertungsmodell und Unternehmensbewertung 

bei Rückstellungen 

64 La Mura, Pierfrancesco; Herfert, Matthias (2004) 

Estimation of Consumer Preferences via Ordinal Decision-Theoretic Entropy 

63 Wriggers, Stefan (2004) 

Kritische Würdigung der Means-End-Theorie im Rahmen einer Anwendung auf 

M-Commerce-Dienste

62 Kirchgeorg, Manfred (2003) 

Markenpolitik für Natur- und Umweltschutzorganisationen 


Correlated Equilibria of Classical Strategic Games with Quantum Signals 

60 Schwetzler, Bernhard; Reimund, Carsten (2003) 

Conglomerate Discount and Cash Distortion: New Evidence from Germany 

59 Winkler, Karsten (2003) 

Wettbewerbsinformationssysteme: Begriff, Anforderungen, Herausforderungen 

58 Winkler, Karsten (2003) 

Getting Started with DIAsDEM Workbench 2.0: A Case-Based Tutorial 

57 Lindstädt, Hagen (2002) 

Das modifizierte Hurwicz-Kriterium für untere und obere Wahrscheinlichkeiten - 

ein Spezialfall des Choquet-Erwartungsnutzens 

56 Schwetzler, Bernhard; Piehler, Maik (2002) 

Unternehmensbewertung bei Wachstum, Risiko und Besteuerung – 

Anmerkungen zum „Steuerparadoxon“ 

55 Althammer, Wilhelm; Dröge, Susanne (2002) 

International Trade and the Environment: The Real Conflicts 

54 Kesting, Peter (2002) 

Ansätze zur Erklärung des Prozesses der Formulierung von 

Entscheidungsproblemen 

53 Reimund, Carsten (2002) 

Internal Capital Markets, Bank Borrowing and Investment: Evidence from German 

Corporate Groups 

52 Fischer, Thomas M.; Vielmeyer, Uwe (2002) 

Vom Shareholder Value zum Stakeholder Value? Möglichkeiten und Grenzen der 

Messung von stakeholderbezogenen Wertbeiträgen 

51 Fischer, Thomas M.; Schmöller, Petra; Vielmeyer, Uwe (2002) 

Customer Options – Möglichkeiten und Grenzen der Bewertung von 

kundenbezogenen Erfolgspotenzialen mit Realoptionen 

50 Grobe, Eva (2003) 

Corporate Attractiveness : eine Analyse der Wahrnehmung von 

Unternehmensmarken aus der Sicht von High Potentials 

49 Kirchgeorg, Manfred; Lorbeer, Alexander (2002) 

Anforderungen von High Potentials an Unternehmen – eine Analyse 

auf der Grundlage einer bundesweiten Befragung von High Potentials und 

Personalentscheidern 

48 Kirchgeorg, Manfred; Grobe, Eva; Lorbeer, Alexander (2003) 

Einstellung von Talenten gegenüber Arbeitgebern und regionalen Standorten : 

eine Analyse auf der Grundlage einer Befragung von 

Talenten aus der Region Mitteldeutschland 

(not published)

47 Fischer, Thomas M.; Schmöller, Petra (2001) 

Kunden-Controlling – Management Summary einer empirischen Untersuchung in 

der Elektroindustrie 

46 Althammer, Wilhelm; Rafflenbeul, Christian (2001) 

Kommunale Beschäftigungspolitik: das Beispiel des Leipziger Betriebs für 

Beschäftigungsförderung 

45 Hutzschenreuter, Thomas (2001) 

Managementkapazitäten und Unternehmensentwicklung 


On the Shape of Information Processing Functions 

43 Hutzschenreuter, Thomas; Wulf,Torsten (2001) 

Ansatzpunkte einer situativen Theorie der Unternehmensentwicklung 


Die Versteigerung der deutschen UMTS-Lizenzen – eine ökonomische Analyse 

des Bietverhaltens 


Decisions of the Board 


Entscheidung und Handlung 


Was sind Handlungsmöglichkeiten? – Fundierung eines ökonomischen 

Grundbegriffs 

38 Kirchgeorg, Manfred; Kreller, Peggy (2000) 

Etablierung von Marken im Regionenmarketing – eine vergleichende Analyse der 

Regionennamen "Mitteldeutschland" und "Ruhrgebiet" auf der Grundlage einer 

repräsentativen Studie 


Lehren aus dem deutschen Konvergenzprozess – eine Kritik des „Eisernen 

Gesetzes der Konvergenz“ und seines theoretischen Fundaments 

36 Hutzschenreuter, Thomas; Enders, Albrecht (2000) 

Möglichkeiten zur Gestaltung internet-basierter Studienangebote im Markt 

für Managementbildung 


Der Einfluss von Wachstum, Risiko und Risikoauflösung auf den 

Unternehmenswert 

34 No longer available. There will be no reissue. 

33 Löhnig, Claudia (1999) 

Wirtschaftliche Integration im Ostseeraum vor dem Hintergrund der 

Osterweiterung der Europäischen Union: eine Potentialanalyse 

32 Fischer, Thomas M. (1999) 

Die Anwendung von Balanced Scorecards in Handelsunternehmen

31 Schwetzler, Bernhard; Darijtschuk, Niklas (1999) 

Unternehmensbewertung, Finanzierungspolitiken und optimale Kapitalstruktur 

30 Meffert, Heribert (1999) 

Marketingwissenschaft im Wandel – Anmerkungen zur Paradigmendiskussion 


Stochastische Verknüpfung und implizite bzw. maximal zulässige 

Risikozuschläge bei der Unternehmensbewertung 

28 Fischer, Thomas M.; Decken, Tim von der (1999) 

Kundenprofitabilitätsrechnung in Dienstleistungsgeschäften – 

Konzeption und Umsetzung am Beispiel des Car Rental Business 


Economic Value Added (EVA ® ) - Informationen aus der externen 

Rechnungslegung zur internen Unternehmenssteuerung? 

(rev. edition, July 2000) 

26 Hungenberg, Harald; Wulf, Torsten (1999) 

The Transition Process in East Germany 


Knowledge of the Game, Relative Rationality, and Backwards Induction 

without Counterfactuals 

24 Darijtschuk, Niklas (1998) 

Dividendenpolitik 

23 Kreller, Peggy (1998) 

Empirische Untersuchung zur Einkaufsstättenwahl von Konsumenten 

am Beispiel der Stadt Leipzig 

22 Löhnig, Claudia (1998) 

Industrial Production Structures and Convergence: Some Findings 

from European Integration 


Unternehmensbewertung unter Unsicherheit – Sicherheitsäquivalent- 

oder Risikozuschlagsmethode 

20 Fischer, Thomas M.; Schmitz, Jochen A. (1998) 

Kapitalmarktorientierte Steuerung von Projekten im Zielkostenmanagement 

19 Fischer, Thomas M.; Schmitz, Jochen A. (1998) 

Control Measures for Kaizen Costing - Formulation and Practical Use 

of the Half-Life Model 

18 Schwetzler, Bernhard; Ragotzky, Serge (1998) 

Preisfindung und Vertragsbindungen bei MBO-Privatisierungen in Sachsen 


Shareholder-Value-Konzept, Managementanreize und Stock Option Plans 


Prozeßkostencontrolling – Gestaltungsoptionen in der öffentlichen 

Verwaltung

15 Hungenberg, Harald (1998) 

Kooperation und Konflikt aus Sicht der Unternehmensverfassung 

14 Schwetzler, Bernhard; Darijtschuk, Niklas (1998) 

Unternehmensbewertung mit Hilfe der DCF-Methode – eine Anmerkung 

zum „Zirkularitätsproblem“ 

13 Hutzschenreuter, Thomas; Sonntag, Alexander (1998) 

Erklärungsansätze der Diversifikation von Unternehmen 


Koordination im Qualitätsmanagement – Analyse und Evaluation im Kontext der 

Transaktionskostentheorie 

11 Schwetzler, Bernhard; Mahn, Stephan (1997) 

IPO´s: Optimale Preisstrategien für Emissionsbanken mit Hilfe von 

Anbot-Modellen 

10 Hungenberg, Harald; Hutzschenreuter, Thomas; Wulf, Torsten (1997) 

Ressourcenorientierung und Organisation 


Knowledge of the Game, Rationality and Backwards Induction 

(Revised edition HHL Working Paper No. 25) 


Visionen, Revolutionen und klassische Situationen – Schumpeters 

Theorie der wissenschaftlichen Entwicklung 

7 Hungenberg, Harald; Hutzschenreuter, Thomas; Wulf, Torsten (1997) 

Investitionsmanagement in internationalen Konzernen 

- Lösungsansätze vor dem Hintergrund der Agency-Theorie 

6 Hungenberg, Harald; Hutzschenreuter, Thomas (1997) 

Postreform - Umgestaltung des Post- und Telekommunikationssektors in 

Deutschland 


Die Kapitalkosten von Rückstellungen zur Anwendung des Shareholder- 

Value-Konzeptes in Deutschland 

4 Hungenberg, Harald (1996) 

Strategische Allianzen im Telekommunikationsmarkt 


Rationality of Choice and Rationality of Reasoning (rev. Edition, September 1996) 


Verluste trotz steigender Kurse? - Probleme der Performancemessung 

bei Zinsänderungen 

1 Meffert, Heribert (1996) 

Stand und Perspektiven des Umweltmanagement in der betriebswirtschaftlichen 

Forschung und Lehre

HHL – Leipzig Graduate School of Management 

Jahnallee 59 • Germany 

04109 Leipzig 

Tel. + 49 341 9851-60 

Fax + 49 341 4773243 

http://www.hhl.de

Enforcing Financial Reporting Standards: The Case of White ...

Create successful ePaper yourself

Delete template?

Save as template?