Research and Development - Audit Process

The past of business is littered along with cases of companies which have collapsed as a convulsion of over indulgence in discover and development on products which have proved entirely unprofitable.  Unhappily most of these could not have been simply seen from the preceding financial statements.  Simply capitalized research of a lot of companies and auditors made little attempt to check out which the values attributed to this asset were realistic.

Research is an essential expense in earning revenue and can excusably be matched against it.  Conversely, when development and research expenditure is incurred here, so there is no telling whenever and whether the associated revenue will materialize.  Such the concept of prudence would dictate which such expenditure is written off as it is incurred.

The authoritative document on development and research is International Accounting Standard Number38 Intangible Assets.

IAS 38 Intangible Assets was concerned in March 2004 and is applied for the accounting to intangible assets obtained in business combinations after then date 31 March 2004, and to each other intangible assets for annual periods beginning on or after then date 31 March 2004.