Ias38 Applied In Practice Essay

6749 words - 27 pages

1
Outline of the case study analysis In order to examine how IAS 38 "Intangible assets" is applied in practice by EU corporations, we
surveyed the accounting treatment of internally generated development costs of fifty large corporations
using their published annual reports for fiscal 2007. The survey covered the corporations in the industries
where we expected that the percentage and amount of R&D expenditures are large compared with other
industries and there are strong needs from investors to disclose the amount of the capitalized development
costs, including pharmaceuticals and automotive.
The data available for this analysis cover only three years at the longest because mandatory application
of IFRSs in Europe started in 2005. Readers should keep in mind that the data volume currently available
is as yet not enough for an adequate time series analysis.
Summary of analysis results The industries surveyed can be categorized largely into the following three groups.
I. Industries where few companies capitalize internally generated development costs and most
companies charge them to income as incurred.
II . Industries where all companies capitalize large amounts of internally generated development
costs.
III. Industries where some companies charge all internally generated development costs to income
as incurred and other companies capitalize them, that is, there is divergence in accounting
treatments
I. Industries where few companies capitalize internally generated development costs and most
companies charge them to income as incurred
(i) Pharmaceutical industry (surveyed companies: 6)
• Except for one company, internally generated development costs were fully charged to income as incurred.
• The reasons for not capitalizing internally generated development costs are uncertainties about regulatory approval for new drugs and so on.
(ii) Food and beverage industries (surveyed companies: 7)
• Except for one company, internally generated development costs were fully charged to income as incurred.
• The reason for not capitalizing internally generated development costs is large uncertainty about the future economic benefits generated by the new products.

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(iii) Chemical industry (surveyed companies: 5)
• Three companies capitalized only a very small part of internally generated development costs and the other two charged all internally generated development costs to income as incurred.
• We guess that the companies in chemical industry are cautious in capitalizing internally generated development costs due to concern for the uncertainties about commercialization of products,
because this industry is close to the pharmaceutical industry and some companies are engaged in
both.
II. Industries where all companies capitalize large amounts of internally generated development
costs
Automotive (finished vehicles) industry (surveyed companies: 6)
• All companies capitalized internally generated development costs....

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