The financial results for the year ended March 2004 of some of New Zealand's top companies show many abnormal write-downs. These involve capitalized R & D costs, IT projects and identifiable intangible assets. For example, Trading Company (NZ) Ltd wrote off $12 million dollars as an abnormal expense with it's Statement of Accounting Policies describing this as a "restructuring costs.'; Food Barn Ltd made a $5 million write-down of its JDE-One World IT project; Kiwi Tyres hit the market with a $75 million write-off by choosing to derecognize its "Cowcocky' brand; and David Garner Ltd wrote off $28 million following an independent revaluation of its two kitchenware trade names Silly and Lilly. Various regulatory bodies have expressed concern about these write-offs, and these give rise to the questions as to why these costs where capitalized in the first place, whether relevant accounting standards have been complied with and whether stakeholders of these companies have been mislead.
             While it might be correct, as Professor David Drum says, that writing down asset values to their recoverable amount is in compliance with FRS-3, the contentious issue here is whether the recognition of these costs as assets in the their financial statements in the first place was in compliance with FRS-13 and whether their write-offs subsequent to revaluations as abnormal expenses were in line with FRS-7.
             Let's firstly look at the R & D expenditure. The accounting treatment of R & D expenditure is set out in FRS-13. FRS-13 differentiates between "research" costs and "development" costs. Research costs are expensed in the period in which they are incurred. FRS-13 requires development costs to be recognized as an asset when, and only when, all of the following criteria are met:
             The product or process is clearly defined and the costs attributable to the product or process can be identified separa...