Analysis of Accounting Standards and Technology Assets at CSL Limited

This report analyzes the accounting policies and practices of CSL Limited regarding technology assets, focusing on compliance with AASB 138 Intangible Assets. The report examines the treatment of research and development (R&D) expenditures, development phase recognition criteria, and the classification of technology assets like intellectual property and software. It identifies inconsistencies in the treatment of technology asset expenditures compared to property, plant, and equipment expenditures. The report further assesses the impact of these accounting practices on CSL Limited's financial statements, including the income statement and balance sheet, and discusses the relevance of technology asset expenditures, particularly R&D, to financial statement users, firm performance, and stock valuation. The analysis emphasizes the positive correlation between R&D investment and firm growth, stock prices, and overall performance.

Running head: ACCOUNTING STANDARDS AND REGULATIONS
Accounting Standards and Regulations
Name of the Student
Name of the University
Author’s Note

1ACCOUNTING STANDARDS AND REGULATIONS
Executive Summary
The main aim of this report is the analysis of different aspects of expenditures related to
technology products in CSL Limited. This report considers the analysis of the accounting
policies of AASB 138 Intangible Assets. After that, this report discusses about the
inconsistencies in the treatment of the expenditures related to technology assets. Findings
also considers the impact of these inconsistencies in the financial statements. Lastly, the
report also discusses about the relevance and relation of R&D like expenditures to the firm’s
performance and the users of financial statements.

2ACCOUNTING STANDARDS AND REGULATIONS
1. Part A: Accounting Policies related to Research and Development and Development
of Technology
It is needed for the companies listed under ASX to comply with certain accounting
policies and standards for research and development and development technology; and the
same is also applicable for CSL Limited. In Australia, the presence of AASB 138 Intangible
Assets can be seen that provides the companies with the required accounting policies for the
financial treatment of research and development expenditures and development of technology
assets.
The application of the accounting policies of AASB 138 Intangible Assets can be seen
on the expenditures in research and development activities and this can be seen in AASB 138,
Paragraph 5. The same paragraph states that research and development activities are related
to knowledge development. Although these activities can lead to the development of assets
with physical substances, the physical element of this asset is considered as secondary to their
intangible components like knowledge (aasb.gov.au 2019). According to AASB 138,
Paragraph 126, it is needed for an entity to disclose the aggregate amount of research and
development expenditure and the company needs to recognize them as an expense during the
period. In this context, it needs to be mentioned that the research and development
expenditures includes all the expenditures having direct attribution to the research and
development activities within the entities (aasb.gov.au 2019).
According to AASB 138, Paragraph 52, in order to assess whether an internally
generated intangible assets meets the recognition criteria, a firm needs to classify the asset
generation process in two phases; they are research phase and development phase. AASB
138, Paragraph 57 provides the accounting policies on the Development Phase (aasb.gov.au
2019). An entity shall recognize an intangible asset arising from development phase in case it
can demonstrate certain crucial aspects; such as the presence of a technical feasibility that
will make the asset able for sale, its intention for completing the intangible asset along with
the use or sell of it, ability of using or selling the asset, the process of generating future
benefit by the asset, the availability of the required resources and its ability to be measured
reliably. It needs to be mentioned that the presence of all these aspects provides the
companies with the scope to recognize these assets as the technology assets (aasb.gov.au
2019).

3ACCOUNTING STANDARDS AND REGULATIONS
2. Part B: Inconsistencies in CSL Limited
Requirement a
According to the 2018 Annual Report of CSL Limited, the main intention of the
company behind conducting the research and development activities is supporting the future
development to serve the patient communities for improving the existing products and for
developing new therapies (Hu, Percy and Yao 2015). As per the 2018 Annual Report, the
costs having association with the research and development activities are expensed as
incurred due to the existence of uncertainty (csl.com 2019). According to the requirements of
AASB 138, CSL Limited has treated these research and development activities in the correct
manner since they are directly attributed to the research or development of technology assets.
Thus, there is not any inconsistencies in CSL Limited’s treatment of expenditures on
technology assets (Ji and Lu 2014).
In CSL Limited, Intellectual property and software are the technology assets. CSL
Limited has recognized their intellectual property at cost that is fair value at the acquisition
date; and the company has recognized software in the same manner (csl.com 2019). It needs
to be mentioned that the intellectual property raised from the Momenta transaction provided
CSL Limited with the right to certain intellectual property, but the company did not recognize
them since they had doubts on the creation of future economic benefits. It indicates that CSL
Limited has complied with the accounting policies of AASB 138 for the recognition of
technology assets and thus, there is not any inconsistencies in the recognition of technology
assets (Russell 2017).
Requirement b
It can be seen from the above discussion that CSL Limited has treated the
expenditures related to the research and development of technology assets in accordance with
the accounting policies of AASB 138 and there is not any inconsistencies in the treatment of
expenditures for the development of technology assets. It indicates towards the fact that the
company is considering the expenses for technology assets as revenue expenses. However,
the scenario is different in case of the expenditure treatment of property, plant and equipment.
It can be seen in the case of the expenditure of property, plant and equipment that the
company has not considered the expenditures related to property, plant and equipment as
revenue expenses. Instead of this, the company has considered this expenditures in the
development of property, plant and equipment as the capital work-in-progress and they will

4ACCOUNTING STANDARDS AND REGULATIONS
transfer this fund to the real asset at the end of the project. This is a major inconsistency in
this aspect.
3. Part C: Consequences for the Financial Reports of the Inconsistencies
It needs to be mentioned that the presence of this above-mentioned inconsistency has
certain impact on certain financial statements of CSL Limited which are income statement
and balance sheet. According to the 2018 Annual Report of CSL Limited, the company has
incurred $702.4 million as the cost incurred for the research and development of new
technology assets (csl.com 2019). Since the company has considered this cost as the revenue
expenditure, it is needed for them to record this expenditure in the income statement as an
expenditure. Due the inclusion of this expenditure in the income statement, the net profit of
the company will decrease (Robinson et al. 2015). At the same time, it will also create impact
on the company’s balance sheet. It can be seen from the 2018 Annual Report of CSL Limited
that the amount of other additions under property, plant and equipment in the year was $3.4
million (csl.com 2019). Since the company has accumulated it in the capital work-in-progress
and will transfer this amount to the real account at the completion of the project, this will be
added up with the value of property, plant and equipment in the balance sheet (Easton and
Sommers 2018). As a result, this will lead to the increase in the total assets of CSL Limited.
4. Part D: Empirical Evidence
The expenditure on technology assets have become a major area of interest for the
users of the financial statements due to the presence of certain aspects. The users of financial
statements expect that these expenditures would lead to the positive net present value which
would create value for them (Merkley 2013). The presence of two approaches can be seen in
treating these expenditures; either they can be expensed or they can be capitalized. In most of
the cases, when there is future economic benefits involved with these expenditures, they need
to be capitalized, but they are expensed when there is not any future benefits involved.
However, objectivity of the financial statements increases when they are expensed. All these
aspects indicates towards the fact that that these expenditures related to technology assets are
relevant to the users of financial statements (Merkley 2013).
It needs to be mentioned that expenditures in technological assets like R&D have
positive role to play in firm value, stock returns and firm performance. Successful R&D leads
to the development of technologically advanced products and services that makes the firms
able in distinguishing itself from its competitors (Başgoze and Sayin 2013). For this reason,

5ACCOUNTING STANDARDS AND REGULATIONS
the presence of a positive correlation can be seen between R&D and stock prices of the
companies. Increased investments in R&D plays a crucial role in innovation along with the
future progress of the companies. It also needs to be mentioned that expenditures like R&D
are considered as crucial determinants for the market capitalization of firms such as cash
flows, growth, and risk and market share (Berchicci 2013). In the presence of all of these
aspects, it can be said that there is a positive association between expenditures like R&D and
firm’s growth, stock price and performance.

6ACCOUNTING STANDARDS AND REGULATIONS
References
Aasb.gov.au. 2019. Intangible Assets. [online] Available at:
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