FRC consults on the reporting of intangibles

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06 Feb, 2019

The Financial Reporting Council (FRC) has launched a consultation into possible improvements to the reporting of factors that are important to a business’ generation of value.

The FRC notes that there are frequent calls to reform the accounting for intangible assets, partly in response to the move to a knowledge-based economy. Therefore, the FRC paper published today considers the case for radical change to the accounting for intangible assets and the likelihood of such change being made in the near future. 
It suggests that:

  • relevant and useful information could be provided without the need to recognise more intangible assets in companies’ balance sheets;
  • such information could cover a range of factors, broader than the definition of intangible assets in accounting standards, that are relevant to the generation of value;
  • improvements could be made on a voluntary basis within current reporting frameworks (such as the strategic report); and
  • participants in the reporting supply chain could collaborate to bring about improvements.

The paper is structured into five sections:

  • Section 1 introduces the subject and notes the objectives of the paper.
  • Section 2 discusses the implications of the IASB's Conceptual Framework for the reporting of intangibles. It relates its conclusions to the economic features of intangibles that are identified in the literature.
  • Section 3 considers possible improvements to the reporting of expenses incurred to develop intangibles that cannot be capitalised in financial statements but are expected to benefit future periods.
  • Section 4 discusses how narrative reporting, including the use of metrics, might be used to provide better information for investors on intangibles.
  • Section 5 notes that further consideration is required of the implementation of the suggestions made in the paper and the role of preparers, investors, and standard- setters in that process.

Please click to access the consultation paper on the FRC website. Comments are requested by 30 April 2019.

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