Accounting for Intangible Assets

Abstract:

Intangible assets are an important aspect of any corporation’s accounting procedure. Identifying and recognising intangible assets is subject to a drawn out process in which detailed criteria must be met. Specifically, internally generated intangible assets have their own recognition criteria, however the appropriateness of their requirements has come under intense scrutiny from various Australian companies, organisations and associations, causing confusion amongst individuals. Various opinions have been discussed as to why internally generated intangible assets should or shouldn’t be recognised as intangible assets, and it is from this argument that causes uncertainty to exist amongst investors, as they have an inability to properly analyse the potential earnings of a company.

The AASB (2009) defines an intangible asset as “an identifiable non-monetary asset without physical substance”. However, it also acknowledges that determining what is, or isn’t, recognised as an intangible asset is not as simple as the above definition may suggest. In order to identify an intangible asset, very specific criteria must be met. AASB 138 Intangible Assets, paragraph 63 states that “Internally generated brands, mastheads, publishing titles, customer lists and items similar in substance shall not be recognised as intangible assets”. The existence of this rule can be argued both for and against, as much debate has resulted as to whether this exclusion should actually apply.

In order for an asset to be classified as intangible, it must meet the three definition requirements of “identifiability, control over a resource and existence of future economic benefits” (AASB 2009). An asset is identifiable if it’s either separable and/or created from legal rights. This distinguishes intangible assets from goodwill, which does not contain the attributes of identifiability or separability. Separable assets are those that can be moved from...