As a result of historical cost accounting, most intangibles are unrecorded unless purchased. Consequently, accounting rules put firms on unequal bases, favoring those that out-source research by allowing the costs to be amortized over time. In the case of software, SFAS 86 requires firms to expense when incurred all costs of developing software until its technological feasibility is established . After establishing commercial feasibility, in the form of program designs or working models, software development costs can be capitalized and amortized over a longer time. This rule favors software technologies over others, the costs of which must be expensed in the period regardless of feasibility.
Many technology companies compete and expand by acquiring others.
Because acquisition-related expenses are more forgivable by investors, companies may mask their performance through an acquisition. Under the purchase method of accounting for mergers and acquisitions, acquiring companies must allocate the purchase cost beyond the fair values of the acquired firms' assets between goodwill and In-process Technology. Another reason is that investors appreciate a big bath in the acquisition year better than repeatedly depressed earnings in the following years. To clamp down on inappropriate charges, the SEC has doubled its scrutiny of In-Process Technology . Some Internet companies have attempted to give their stocks away as part of a promotion.