The Hertle Engineering Company depends on new product development to maintain its position in the market for drilling tool equipment. The company conducts an extensive research and development program, and has charged all research and development costs to current operations in accordance with CICA Handbook requirements.
The company began a project called Project Able in January 20X1 with the goal of patenting a revolutionary drilling bit design. Work continued until October 20X2, when the company applied for a patent. Costs were charged to the research and development expense account in both years, except for the cost of a computer program that engineers plan to use in Project Baker, scheduled to start in December 20X2. The computer program was purchased from Computeering Inc. in January 20X1 for $45,000.

a. Give an audit program for the audit of research and development costs on Project Able. Assume that you are auditing the company for the first time at December 31, 20X2.
b. What evidence would you require for the audit of the computer program that has been capitalized as an intangible asset? As of December 31, 20X2, this account has a balance of $40,000 (cost less $5,000 amortized as a part of Project Able).

  • CreatedJanuary 09, 2015
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