INTHEBLACK July 2022 - Magazine - Page 8
GET SMART
// C PA A U S T R A L I A P O L I C Y
AT A G L A N C E
JULY
UPDATE
Ram Subramanian is CPA
Australia’s senior manager,
reporting policy
IAS 38 Intangible Assets
was issued more than 20
years ago, and auditors,
valuers and regulators
believe the current
requirements could
benefit from a review.
Intangibles such as
intellectual property,
branding, technology
and research and
development are
generating increasing
returns for businesses,
but the general
consensus is that
International Financial
Reporting Standards
have not kept pace with
the rapid growth in value
represented by these
assets.
CLOSING
THE GAP
AS ORGANISATIONS GARNER INCREASING BENEFITS FROM INVESTMENTS INTO INTANGIBLES,
THE CHALLENGE AHEAD FOR STANDARD-SETTERS IS TO PRODUCE A SET OF REPORTING
REQUIREMENTS THAT HELP ORGANISATIONS TRANSLATE INTANGIBLE VALUE INTO
MEANINGFUL FINANCIAL INFORMATION AND CLOSE A PERCEIVED INFORMATION GAP.
P
CLICK HERE
TO READ
a CPA Australia
report on the
decisionusefulness of
financial reports
CLICK HERE
HERE TO
BORROW
Intellectual
Property and
Business from the
CPA Library
8 ITB July 2022
hysical assets are no longer the mainstay of
transactional and stored economic value for many
organisations. Businesses are increasingly
investing into and benefiting from a range of
intangibles including technology, branding, research and
development (R&D) and intellectual property.
International Financial Reporting Standards (IFRS) have
not kept pace with the rapid growth in organisational
value represented by intangibles. IAS 38 Intangible Assets
(IAS 38) was issued more than 20 years ago and, since
then, minimal changes have been made to the definition,
recognition criteria, measurement, presentation and
disclosure requirements for intangible assets.
There is broad consensus among preparers, auditors,
valuers, regulators and users of financial statements that
the current requirements would benefit from a review.
Upon taking up his role as chair of the International
Accounting Standards Board (IASB), Andreas Barckow
acknowledged, “the rise of self-generated intellectual
property and its non-addressal in the accounts” as one of
the challenges for the IASB.
However, the inclusion of reliably measured information
on intangibles that meet the IFRS asset definition and
recognition criteria is no easy task.
CLEAR DEFINITIONS
To better understand the impact of intangibles on an
organisation’s economic value, a distinction needs to be
drawn between intangible “items” that do not meet the
definition of an asset (e.g., corporate culture, employees,
customer loyalty) and intangible “assets” (e.g., brand,
R&D, technology).
The market places importance on information relating
to both types of intangible value created and held by an
organisation. However, for the purposes of reliably
identifying, measuring, recognising or disclosing such
intangible value, costs incurred in respect of intangible
assets are likely to be more readily identifiable than
costs relating to intangible items that are not assets.
Although the costs incurred in developing intangible
assets might be separately identifiable, such costs may
not always meet the IFRS asset recognition criteria as
currently specified. For example, a company’s
expenditure on R&D may not always be expected to
come to fruition in the form of future economic benefit,
undermining the ability to consider such expenditure as
an “asset.”
STANDARD-SETTERS RESPOND
While accounting challenges remain, standard-setters
have now begun responding to the call to provide better
information on intangibles in financial statements.
The Australian Accounting Standards Board (AASB)
has published a research staff paper, Intangible Assets:
Reducing the Financial Statements Information Gap
through Improved Disclosures, which explores how
disclosures could play a part in improved information on
intangible assets. The paper notes that, although IAS 38
(AASB 138 is the Australian equivalent) encourages
some minimal voluntary disclosures about significant
unrecognised intangible assets (IAS 38, para 128(b)),
this is not widely adopted in practice.
Reasons for the lack of uptake could include concerns
about the challenges and costs associated with the