Importance Of Reporting Intangible Assets

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Reporting Intangible Assets Accurate financial reporting of an organization is very important in today’s modern business world. Intangible assets play a critical role in the valuation of an entity as they may bring significant value to the table. An intangible asset is an identifiable nonfinancial asset which lacks physical properties according to both the international community as well as the standards set by the United States. Intangible assets include items such as such as trademarks, patents, brand recognition, methodologies, copyrights, import quotas, and goodwill among many others, in today 's business environment. These assets can be classified as either indefinite or definite which are dependent on the details of the asset. As …show more content…
For example when accounting for business combinations the purchase method is the prescribed method under both IFRS and GAAP. This method prevents the acquiring company from capitalizing any losses from the acquisition and appearing more profitable than it would than it was in reality. However, the purchasing company’s expenses are capitalized only if the expenses increase the value of the asset. Furthermore, software is capitalized under both systems as well in a similar manner. Under these methods a distinction is made for whether or not the software being produced will be used internally or externally. For internal use the costs are capitalized while the application is under development. Conversely, when it is developed for external use then the software is capitalized when the software becomes readily available (Deloitte 2008). The similarities between IFRS and GAAP are helpful in aiding the convergence between the two methodologies. However, even with these agreements accounting for intangible assets should still be handled responsibly. In a report from the U.K. it asserted that the accounting methods for intellectual property are being mishandled specifically with patents. Patents are being used to make a company to look more profitable or lucrative than they actually are. For example, in one claim Tony …show more content…
While the definition of intangibles assets while mostly similar does note one distinction. IFRS dictates that in order to be qualified as an intangible asset that it must be controlled by an entity while GAAP does not have the requirement. This distinction was highlighted at the G4+1 conference in October of 2000 (G4+1 2001). Another difference is that GAAP uses the cost method while the revaluation method is restricted. However, with IFRS the revaluation method is allowed under the right conditions. With GAAP research and development costs are expensed normally while IFRS dictates a more complex set of rules which generally needs the product to be completed before it can be expensed. Finally, with GAAP start up costs are always expensed and with IFRS this is not the case (PricewaterhouseCoopers 2008). Business combinations are also a concern when analyzing intangible assets. For example, an Austrian automotive component manufacture recently made headlines as becoming the first European listed company to have its accounts qualified. This is because under IAS 38 the company did not meet IAS 38’s recognition criteria to allow capitalization of these assets. It is evident that while there are differences between the two accounting methodologies that both accounting practices are equally

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