Larry Corporations R&D department found an idea for a revolutionary product that would be very profitable for the company. However, this project is very expensive and therefore, necessitates the approval of the companys controller, Matt Lyon.

Matt recognizes that company profits have been down lately and is hesitant to approve a project that will incur significant expenses that cannot be capitalized due to IFRS requirements. He knows that if the company hires an outside firm to do the work and obtain a patent for the process, his company can then purchase the patent from the outside firm and record the expenditure as an asset. Furthermore, Matt knows that his companys own R&D department is first-rate, and he is confident they can do the work well.

Answer the following questions:

1. Why does IFRS make a distinction between internally created intangibles and purchased intangibles?

2. Explain how R&D costs would be reported under IFRS. 3. What are the ethical issues involved in this case? 4. What should Matt do?