June 2015 Exam

Hi sir for June 2015 exam question 5b) for the audit risk stating

“During the year, Sycamore has spent $1·8 million on developing new products; these are at different stages and the total amount has been capitalized as an intangible asset”

my explanation is different from what is given in the answer key. My answer is as follows,

“This expenditure is classified as a research and development cost under IAS 38 Intangible Assets. This accounting standard requires research costs to be expensed to profit or loss and development costs which meets a certain criteria to be capitalized as an intangible asset and amortized over its useful life.

If the company has incorrectly classified research costs as development expenditure, there is a risk the intangible asset could be overstated and expenses understated. ”

will this be accepted ?

Also, my auditor’s response in relation to this risk is also different from the answer key. My answer is as follows,

“Obtain a breakdown of the expenditure and verify that it relates wholly to the development of the new products.

Undertake testing to determine whether the costs relate to the research or development stage.

Discuss the accounting treatment with the finance director and ensure it is in accordance with IAS 38.”

Are my answers correct sir ?