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

definition of an intangible asset, they did not have to capitalize the payment. As a
consequence, the development activities undertaken by Neurocentral, Inc. after the upfront
payment had been made would have to be evaluated as a rendering of services. Thus, both the
milestone payments as well as the lump-sum payment were a compensation for the services
undertaken by Neurocentral. Following this argumentation, Neurocentral just developed the
drug to which White already held the rights. This outsourcing would have to be evaluated
similar to R&D activities undertaken by White itself. Therefore, White would refer to the
official approval by FDA/EMA for a possible capitalization. As this approval had not yet
been received, White would not recognize costs for development activities carried out by
their own R&D department. The same reasoning should hold for outsourced research and
development and, thus, for the payments made to Neurocentral, Inc.
(5) IAS 8 sets out criteria to select and change accounting policies, rules for revising
accounting estimates and for correcting errors. IAS 8 aims at enhancing relevance and
reliability of financial statements and at increasing comparability of financial statements over
time and between entities.
IAS 8 sets out rules for changes in accounting estimates which are defined as “an
adjustment of the carrying amount of an asset or a liability, or the amount of the periodic
consumption of an asset, that results from the assessment of the present status of, and
expected future benefits and obligations associated with, assets and liabilities” (IAS 8.5).
These changes in accounting estimates result from new information or new developments and
are not to be confused with error corrections. Management carries out estimations that are
based on the latest available, reliable information. At the same time, it becomes apparent that
estimates often require revision if circumstances on which the estimates were based change.
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