Reference no: EM133276040

You have recently been appointed as a graduate accountant working for the Australian Accounting Standards Board (AASB). The Technical Director of the AASB has been asked by the International Accounting Standards Board (IASB) to provide an update on the different accounting treatments for "research" and "exploration". The Technical Director sent you the following as an introduction to the issue:

Costs incurred in the "research" phase of a project shall be expensed as incurred. i.e., an intangible asset cannot be recognised on the statement of financial position for companies where AASB 138 Intangible Assets applies (paragraph 54 of AASB 138 prohibits internally generated intangible assets arising from research). However, for extractive industry companies, "exploration" expenditure can be partially or fully capitalised and recognised as an exploration and evaluation asset. Specifically, AASB 6 Exploration for and evaluation of mineral resources states that an exploration and evaluation asset can be recognised in relation to an "area of interest."

Question: Briefly describe each accounting treatment and critically evaluate the differential accounting treatments considering the objective of general purpose financial reporting, the qualitative characteristics of relevance and comparability, and the definition criteria for assets. Support your discussion using academic journal articles and, where relevant, high-quality professional articles and newspapers.