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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: Critically analyse whether you believe the difference in accounting treatments is warranted. Support your position and discussion with reference to academic journal articles, and, where relevant, high-quality professional articles. Lastly, the report should clearly articulate whether you agree with the standard setters in relation to the different accounting treatments.
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