ASIC has welcomed the decision by ASX-listed Cyclopharm Limited (Cyclopharm) to no longer recognise a $3.38 million intangible asset reported as at 31 December 2013.

Cyclopharm has written off the asset as a prior period error in its 30 June 2014 half-year financial report because it was not able to demonstrate that all of the development phase asset recognition requirements of accounting standard AASB 138 Intangible Assets (AASB 138) were met.

ASIC reviewed Cyclopharm’s financial report for the year ended 31 December 2013 as part of its ongoing financial reporting surveillance program and made inquiries about the appropriateness of recognising the intangible asset which related to work to obtain US Food and Drug Administration approval to sell its Technegas product in the United States. Cyclopharm’s accounting policy for the asset indicated that it was an internally generated intangible asset arising from development phase activities.

Before capitalising expenditures arising from development phase activities as an intangible asset, AASB 138 requires a company to demonstrate the technical feasibility of completing the asset so that it will be available for use or sale. AASB 138 also states that costs incurred as part of conducting business in a new location or opening new business or operations are to be expensed to the profit and loss.

Expense deferral remains a focus area of ASIC’s financial reporting surveillances (refer: 14-120MR). ASIC reminds those involved in preparing and approving financial reports to ensure that the criteria for recognition of assets are reassessed at each reporting period.