You have identified that you wish to focus a significant amount of audit testing on the value of capitalised Research and Development costs in the balance sheet. You remember from your studies that blue sky research costs can never be capitalised and that other R&D can only be capitalised when there is a strong probability that the product will be successful and will generate profits in the future.

(a) Which are the key management assertions you will wish to test with regards to capitalised R&D costs? Explain your answer. (Word limit: 200) (6 marks)

(b) Briefly describe 4 tests you would do to obtain audit evidence about these assertions (Word limit: 250) (8 marks) Total: 14 marks