This site uses cookies to provide you with a more responsive and personalised service. By using this site you agree to our use of cookies. Please read our cookie notice for more information on the cookies we use and how to delete or block them.
The full functionality of our site is not supported on your browser version, or you may have 'compatibility mode' selected. Please turn off compatibility mode, upgrade your browser to at least Internet Explorer 9, or try using another browser such as Google Chrome or Mozilla Firefox.

FRC publishes research paper into investor views on accounting for intangible assets under IFRS

  • FRC Image

26 Mar 2014

The Financial Reporting Council (FRC) has published a paper detailing the results of research carried out by their Accounting and Reporting Policy (ARP) team into investor views on accounting for intangible assets under International Financial Reporting Standards (IFRSs).

The report reflects the views of 27 (mainly UK-based) investors on the accounting treatment of different classes of intangible assets in the statement of financial position and their amortisation in the income statement.  Investors were asked to provide their views in the form of a questionnaire on accounting for:

  • intangible assets acquired in a business combination;
  • internally generated intangible assets;
  • separately acquired intangible assets; and
  • adequacy of presentation and disclosure. 

The main findings are as follows: 

Intangible assets acquired in a business combination.

  • A number of respondents expressed a preference for an accounting treatment in the statement of financial position (52%) and income statement (59%) different from that currently required under IAS 38 Intangible Assets and IFRS 3 Business Combinations.  IFRS 3 requires all intangible assets acquired in a business combination to be treated in the same way (i.e. all identifiable assets should be capitalised separately from goodwill if they are separately identifiable or they arise from a legal or contractual right in line with the requirements of IAS 38).  IAS 38 requires intangible assets with finite lives to be amortised over their useful lives and intangible assets with indefinite lives to be subject to an annual impairment review in accordance with IAS 36 Impairment of Assets.
  • Of those respondents who preferred a different accounting treatment in the statement of financial position, 37% made a distinction between what they termed “wasting” intangible assets (which they felt were separable from the entity, had finite useful lives and lead to identifiable future revenue streams) and “organically replaced” intangible assets (effectively the opposite of “wasting” intangible assets).  They believed that “wasting” intangible assets should be separately identified and capitalised but felt that “organically replaced” intangible assets acquired should be accounted for within goodwill.  IAS 38 does not permit a different accounting treatment for this distinction drawn by respondents. 
  • Respondents also expressed a view for a different accounting treatment subsequent to initial recognition than that required under IAS 38.  Some (33%) were of the view that “wasting” intangible assets should be amortised over their useful lives but “organically replaced” intangible assets should be subject to an annual impairment view.  On the other hand, 26% were of the view that all intangible assets should be subject to annual impairment reviews only.  

Internally generated intangible assets

  • The majority of respondents (63%) agreed with the requirement in IAS 38 that development costs should be capitalised as internally generated intangible assets.
  • However, there were mixed views from investors with regards to research costs which IAS 38 requires to be expensed – 15% expressed the view that research costs should be capitalised and 19% expressed the view that research and development costs should be expensed.
  • Investors also expressed concern over disclosure in this area and that companies did not appear to have a consistent approach to capitalisation.  They indicated that it was not clear from disclosures given how the accounting policy in respect of research and development was applied in practice especially how research was distinguished from expenditure.  

Separately acquired intangible assets 

  • Nearly all (89%) of investors agreed with the capitalisation of separately identifiable intangible assets and 56% agreed that such intangible assets should be amortised annually in the income statement. 


  • Investors expressed “concerns” over the quality of disclosures.  The report highlights that as many of the areas that investors requested additional disclosure on are already contained within IFRSs this may suggest that “either preparers are failing to comply with these requirements or that the information provided is not presented with sufficient detail and/or clarity to meet user needs”. 

The report is published at a time when the International Accounting standards Board (IASB) is undertaking a post-implementation review of IFRS 3.  The FRC comment that the research “is intended to capture investors’ views for the IASB to consider in identifying areas for further analysis and investigation”.  They also highlight that it “is also relevant to preparers as it highlights areas of potential improvement in communication with investors within the current frameworks”. 

The full report can be accessed from the FRC website.

Correction list for hyphenation

These words serve as exceptions. Once entered, they are only hyphenated at the specified hyphenation points. Each word should be on a separate line.