Which method can be used to test the capitalization of development costs?

Using a schedule of costs to assess criteria is an effective method for testing the capitalization of development costs. This approach allows auditors to examine the specific costs incurred during the development phase and evaluate whether they meet the criteria for capitalization under relevant accounting standards, such as IFRS or GAAP.

The capitalization of development costs typically requires that the costs are directly attributable to the development of a specific asset, with an expectation that the asset will generate future economic benefits. By obtaining a detailed schedule, auditors can systematically verify which costs qualify for capitalization, ensuring that the entity recognizes expenses in line with accounting principles.

This method also includes the ability to trace back the costs to source documents, such as invoices and timesheets, allowing for a comprehensive review of whether the costs are appropriately recorded and classified. Additionally, it provides the opportunity to assess the criteria of completeness, accuracy, and classification of these capitalized costs against accounting standards and internal policies.

Other methods, while useful in their contexts, do not specifically focus on assessing the criteria for capitalization as effectively as evaluating a detailed schedule of costs. Meeting with external auditors may provide some insights but does not directly test the costs themselves. Reviewing inventory levels relates more to the accuracy of physical assets rather than development costs and only verifying costs