What is the treatment of research costs according to IAS 38?

According to IAS 38, research costs must be expensed in the period incurred. This standard establishes that research encompasses the original and planned investigation undertaken with the prospect of gaining new scientific or technical knowledge and understanding. Since these activities do not meet the criteria for asset recognition, they cannot be capitalized.

The reasoning behind this treatment is that research activities often do not result in a tangible future economic benefit, making it difficult to provide reliable forecasts about associated cash flows. As a result, the financial statements reflect the expenses as they arise, ensuring that the financial performance is reported transparently and in accordance with the accruals principle, which requires expenses to be matched with revenues in the appropriate period.

Thus, the correct handling of research costs in line with IAS 38 is to recognize them as expenses immediately in the income statement for the period they are incurred. This reflects the conservative approach of accounting, prioritizing the reliability and relevance of financial information over potential future benefits that are uncertain.