Corporate Accounting

Abstract

AASB 138 Intangible Assets stipulates the accounting treatment for intangible assets. Intangible assets are non-physical resources that are controlled by the entity and result in future economic benefits for the company. As intangibles possess many unique characteristics that differentiate them from tangible assets it is necessary for intangibles to have a separate accounting standard. This is supported by the fact that these unique characteristics make intangibles extremely hard to identify and measure. It is also for this reason that the standard adopted a conservative approach. The standard does not allow for the recognition of internally generated goodwill and other internally generated intangibles. Additionally there are strict rules on when research and development costs can be capitalised and how subsequent measurement of intangibles can take place. This conservative approach is used as intangibles are considered one of the most controversial items in accounting and without conservative guidelines a company’s financial position could be significantly overstated.

Introduction

One of the major concepts of accounting is to present reliable and accurate information regarding an entity’s financial position to users who use this information to make informed decisions (Busacca & Maccarrone 2007). Therefore it is important for accountants to recognise that the value of a company is not simply made up of physical assets but also of non physical assets known as intangible assets (Skinner 2008). To assist in the valuation of a company the accounting standards board have created separate standards for physical and non physical assets on how they should be recognised and measured (Nearon 2004). However some people believe that it is not necessary for there to be two separate standards. Thus the purpose of this essay is to examine whether it is necessary for there to be a separate standard for the accounting of intangible assets. Additionally the...