a) BNT plc is a highly successful pharmaceutical firm with a fiscal year that ends on 31 December. During the years 2018-2020, it worked on a vaccine against a new type of influenza virus:

2018: In January, several employees from the research & development department started to collect samples of existing virus mutations from all over the world, with the objective to identify high-risk mutations that spread quickly. In June, the employees presented their findings to the CEO of BNT, who decided to pursue the development of an mRNA vaccine against a specific mutation that had appeared in South America. In July, the employees started to modify an existing mRNA vaccine and to test their modification in preliminary clinical trials. Results of these trials suggested a high effi- cacy of the modified vaccine. Until the end of the year, the employees believed that their modified vaccine would go into production soon after.

2019: In February, results from a larger study of the modified vaccine suggested dan- gerous side effects. The employees subsequently collected evidence on side effects and approaches to avoid them. In May, the CEO decided to stop the activities related to the modified mRNA vaccine and instead to pursue a more traditional type of vac- cine. In June, the employees developed such a vaccine. In October, preliminary clinical trials suggested a high efficacy of the new vaccine. In December, several countries from South America expressed their interest in pre-ordering the vaccine, without mak- ing formal commitments.

2020: In March, preliminary results of larger clinical studies suggested a high efficacy without serious side effects and the CEO initiated the approval process with regulators in several countries. At the same time, South American countries ordered the vaccine conditional on positive outcomes of the approval processes. The CEO was optimistic about the outcome of the approval processes and started the production. In August, all clinical studies necessary for regulatory approval were completed and results con- firmed earlier findings. In November, the first regulator approved the vaccine for use in Argentina. In December, BNT started to supply Argentina with the vaccine.

In every stage that is described above, BNT incurred expenses.

REQUIRED:

(a) Specify how the expenses that BNT incurred in its search for a vaccine are to be treated in BNTs financial statements in the years 2018, 2019 and 2020. Explain in detail whether and, if so, when expenses qualify for recognition of an internally generated intangible asset under IAS 38.

[20 marks] Please turn over

b) Explain how the IASB defines financial performance and how the treatment of ex-

penses in a) affects this financial performance.