**Audit Procedures for Research and Development Expenses:**

Research and development (R&D) expenses represent the costs incurred by a company in conducting research activities aimed at developing new products, processes, or services. Auditing R&D expenses involves verifying the accuracy and completeness of these expenses in the company's financial statements. Here's a brief overview of audit procedures for R&D expenses:

1. **Review of R&D Projects:** Auditors review the company's R&D projects to understand the nature and scope of research activities being conducted. They assess the appropriateness of capitalization criteria for R&D costs incurred, distinguishing between research (expensed) and development (capitalized) expenditures.

2. **Documentation Verification:** Auditors examine documentation supporting R&D expenses, such as project budgets, contracts with research partners, invoices from suppliers, and payroll records for R&D personnel. They verify the accuracy and completeness of expenses recorded in the company's accounts.

3. **Assessment of Capitalization Policies:** Auditors evaluate the company's policies for capitalizing R&D expenses in accordance with accounting standards, such as IAS 38 (Intangible Assets). They ensure that only qualifying development costs are capitalized, based on criteria such as technical feasibility, future economic benefits, and measurement reliability.

4. **Testing Internal Controls:** Auditors test the effectiveness of internal controls over R&D expenditure recording and reporting processes. They assess controls related to authorization, documentation, review, and approval of R&D expenses to prevent errors, misstatements, or fraudulent activities.

5. **Comparison with Budgets and Forecasts:** Auditors compare actual R&D expenses with budgeted amounts and forecasts to identify significant variances or deviations. They investigate any material differences and assess the reasons behind overruns or underspending in R&D projects.

**Objective Type Question:**

In auditing research and development (R&D) expenses, auditors primarily focus on:

A) Reviewing project budgets and contracts B) Analyzing accounts payable procedures C) Assessing inventory turnover ratios D) Evaluating depreciation methods