An asset is defined by the Conceptual Framework as a resource controlled by an entity as a result of past transactions or events from which future economic benefits (normally net cash inflows) are expected to flow to the entity. However assets can only be recognised (on the statement of financial position) when these expected benefits are probable and can be measured reliably.

The Conceptual Framework recognises that there is a close relationship between incurring expenditure and creating an asset, though they do not necessarily happen at the same time. Development expenditure is an example of the relationship between expenditure and creating an asset.

Research and development expenditure is incurred with the hope that it will lead to a profitable product, process or service, but at the time that the expenditure is being incurred, entities cannot be certain or it may not even be probable that the project will be successful.

In line with accounting concepts, if there is doubt that a project will be successful the application of prudence would imply that the expenditure is expensed in the statement of profit or loss.

When management becomes confident that the project will be successful, it then meets the definition of an asset and the accruals/matching concept would mean that it should be capitalised (treated as an asset) and amortised over the period of the expected benefits.

IAS 38 Intangible Assets interprets this as write off of all research expenditure and only capitalising development costs from the point in time where they meet definition of an asset.