Under IFRS, how are research and development costs treated?

Under IFRS, the treatment of research and development costs involves specific criteria that distinguish between the two phases: research and development. Research costs are always expensed as incurred, reflecting the uncertainty and the lack of future economic benefits associated with these expenditures. This aligns with the concept that research activities generally do not yield measurable outcomes that can reliably be capitalized.

On the other hand, development costs can be capitalized, but only if certain criteria are met. These criteria include the intention to complete the asset, the ability to use or sell the asset, the technical feasibility of completing it, and the ability to demonstrate how the asset will generate probable future economic benefits. If these stringent conditions are satisfied, the development costs can be recognized as an intangible asset, allowing them to be capitalized on the statement of financial position.

This nuanced approach enables a separation between the uncertain nature of research and the more promising potential of successful development activities, capturing the economic reality of these expenditures accurately on the financial statements.