Standard setters discuss intangibles

  • IFRS - IFASS (International Forum of Accounting Standard Setters) Image

Sep 30, 2021

On September 30, 2021, the International Forum of Accounting Standard Setters (IFASS) held its fall meeting as a virtual conference. The whole afternoon was devoted to the discussion of intangibles.

As IASB Chair Andreas Barckow pointed out in his inaugural speech at the WSS meeting on Monday, IAS 38, Intangible Assets is more than 20 years old and has never been revisited other than for consequential changes resulting from other projects. He also indicated that he would like the IASB to look into the accounting for intangibles. Reactions to the IASB's agenda consultation showed that constituents would also be interested in “intangibles” as a potential IASB project (while there seem to be diverse views regarding the scope and objective of that potential project). Other developments such as the IVSC perspectives paper Time to get Tangible about Intangible Assets show that there is a great appetite for addressing the issue.

The IFASS session on intangibles started off with the European Financial Reporting Advisory Group (EFRAG) introducing its discussion paper Better information on intangibles – which is the best way to go?. The discussion paper notes that that the value relevance of financial statements is decreasing, which could be due to financial statements not reflecting information about intangibles, which has become more important for more entities than previously. It considers three approaches for better information on intangibles:

  • Recognition and measurement in the primary financial statements;
  • Information on specific intangibles in the notes to the financial statements or in the management report;
  • Information on future-oriented expenses and risk/opportunity factors that may affect future performance in the notes to the financial statements or in the management report.

The scope of EFRAG’s discussions goes beyond the existing definition of assets in financial reporting and also covers sources of possible economic benefits that would not be controlled by an entity.

Following the EFRAG presentation, the Australian Accounting Standards Board (AASB) presented its research on intangible assets. The research is an work in progress, so the staff presented first insights into the research paper that is expected to be published in Q4 2021 or Q1 2022. The research is working from the premise that IAS 38 is very old and leaves gaps in the information reported. To fill the existing information gap quickly, it would seem that following the third of the three possible approaches identified (do nothing, improve recognition and measurement, improve disclosures) would be the best way to follow. Outreach undertaken revealed great support for the approach while suggested additional information provided on unrecognised internally generated intangible assets varied (financial, non-financial, fair value). The forthcoming AASB paper will include a recommended principle, a recommended disclosure objective and (examples of) recommended implementation guidance.

The AASB research is still ongoing. More information on the project and access to a corresponding survey is available on the AASB website.

Following the presentations, participants discussed the findings, investor needs and aspects the IASB should consider in a potential project. Questions, comments and observations included:

  • IAS 38 is no longer fit for purpose, especially digital assets need to be considered (there are currently some software providers whose most significant asset is not on their balance sheet).
  • The uneven playing field between internally generated and acquired intangible assets needs to be reconsidered.
  • There is no need to reconsider the the definition of intangible assets, it is a definition of the word intangible that is needed.
  • IAS 38 does currently not reflect the economic value of an entity.
  • User needs should be the most important aspect considered.
  • There are challenges as regards the valuation of some intangible assets, maybe a hybrid approach of only recognising those that can be measured reliably should be considered.
  • Most intangibles assets are unique, however, bringing them onto the balance sheet might provide the market with the means of pricing them.
  • If intangible assets are recognized, will there also be corresponding liabilities?
  • There is a strong link between intangible assets and sustainability - which Board should take them on?
  • Are crypto assets and crypto currency intangibles?
  • Where would the information be located?
  • Would it be audited?

The IASB Chair noted that the IASB is currently behind some of the standard setters as regards intangibles. It will consider the research and results once it has "digested" the feedback from the agenda consultation. He also acknowledged the wide variety of views on the scope of a potential IASB project on intangibles - as well as the fact that there was general agreement that the wider the scope of the project, the smaller the chances of a timely solution. A general feeling was also that the IASB should approach the problem in stages, beginning with disclosures.

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