Interpretation of the National Accounting Board on R&D reporting

Jana Střelická

Proposal for Interpretation NI-58 Reporting of intangible results of research and development prepared by the NAB passed the first external comment procedure, during which the NAB received a number of suggestions and comments on the basis of which the text of the draft interpretation was revised.

This revised draft interpretation is now in the second external comment procedure which ends on 30 November 2019.

Upon completion of the external comment procedure, the final text of the approved interpretation of the NAB will be published together with a brief report informing on the considering of the comments received.

The interpretation deals with the reporting of research and development in accounting according to Czech accounting regulations.

Since the Czech accounting and tax regulations do not contain a definition of research and development, the question arises, for example, whether the approach to reporting research and development costs in IFRS prepared financial statements is acceptable under Czech accounting regulations.

The interpretation addresses issues such as the general accounting definition of research and the general accounting definition of development, under which conditions it is possible to activate the results of own development and what are the basic principles of depreciation of activated results of own development.

The proposed solution is based on basic accounting principles based on the fact that the research costs represent the costs of the period and do not meet the characteristics of the asset. On the other hand, development costs are capitalized with a sufficient probability of success and measurability.
Development costs should be capitalized to intangible fixed assets only if the asset's characteristics are met and the economic usability of the asset is expected. This intangible asset is depreciated over its economic useful life so as to meet the accrual principle of income and costs.

In Czech accounting practice, in the absence of a specific adjustment development costs are sometimes recognized as deferred expenses or complex deferred expenses. This solution is not considered under the current legislation to be incorrect, however, for the future this solution is not preferred from the point of view of the substance of the development and consistency between financial statements.

What are NAB Interpretations?

The National Accounting Board is an independent professional institution founded in 1999, whose members are representatives of important professional organizations and academic grounds (Chamber of Tax Advisors, Chamber of Auditors, Association of Accountants, University of Economics).

The subject of NAB activities is to support professional competence and professional ethics in the development of accounting professions and in the area of accounting and financing methodology. In addition to participating in the drafting and commenting of regulations, it also creates interpretations of Czech accounting regulations.

The purpose of the interpretations is to express an expert opinion on the practical application of Czech accounting regulations, which responds to accounting issues that are not addressed by the Czech accounting regulations or is insufficient to deal with in practice, or are dealt with by accounting regulations, but the application is inconsistent in practice.

In developing Interpretations, the NAB follows Act on Accounting, other laws and regulations and, when these regulations do not provide clear guidance, take into account the way of fulfilling a true and fair view in internationally recognized rules (if any).

Interpretations thus support the argumentation, decision-making, and choice of accounting policies, principles, and procedures for the entity. However, they are not legally binding, as only the courts are entitled to give such an opinion.

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Jana Střelická
Senior Tax Advisor