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

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
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