Substantive Procedures for Development Expenditure

Question 1

Obtain a schedule…

Answer 1

Obtain a schedule of capitalsied costs within intangible assets, cast it and agree the closing balance to the general ledger, trial balance and FSs

Question 2

Select a sample of capitalised costs…

Answer 2

Select a sample of capitalised costs and agree to invoices, payroll records or other source documentation to confirm that the amount is correct and that cost relates to the project

Question 3

Discuss with the directors…

Answer 3

Discuss with the directors the decision to capitalise the costs from date onwards and assess whether this is based on project meeting all of conditions for capitalisation in IAS 38

Question 4

Review a breakdown…

Answer 4

Review a breakdown of nature of costs capitalised to identify if any research costs have been incorrectly included. If so, request that management remove these and include within P&L

Question 5

Select a sample of costs recorded…

Answer 5

Select a sample of costs recorded as research expenses and development costs and agree to supporting documentation confirming the date of expenditure to ensure that costs were allocated correctly

Question 6

Review market research…

Answer 6

Review market research reports to confirm that there is a market for new process and that selling price is high enough to generate a profit

Question 6

Review feasibility reports…

Answer 6

Review feasibility reports as at date and discuss with directors their view that process was technically feasible at that date

Question 7

Review the budgets…

Answer 7

Review the budgets in relation to development project and cash flow forecast to assess whether Peach Co had access to adequate cash resources to complete the project as at date of capitalisation

Question 8

Discuss with the finance director…

Answer 8

Discuss with the finance director the rationale for the useful life being applied, consider its reasonableness and agree to supporting documentation

Question 9

Recalculate the amortisation charge…

Answer 9

Recalculate the amortisation charge and confirm that it covers the period for set period

Question 10

Review the disclosures…

Answer 10

Review the disclosures for intangible assets in draft FSs to confirm they are in accordance with IAS 38