The research, which was conducted in response to an XRB call for research on intangibles, examines the reporting of and disclosures on intangible assets by listed companies and public benefit entities in New Zealand as a mid-sized market. 

Premise of the research was that accounting for intangibles has long been an area of contention and that there is no question that intangibles are not accurately reflected by financial reporting (the ‘missing information gap’). The research approach was then to look at (1) capitalised intangibles, (2) intangible expenses, and (3) unrecognised intangible disclosures:

• The research showed that nearly 90% of companies listed on the New Zealand stock exchange report intangibles, with software costs being the most commonly capitalised intangible, followed by goodwill. Generally, it was observed that there is a large range in terminology in intangible assets reported. 
• On intangible-related expenditures the research showed that donations are the most frequently reported expense followed by advertising, research and development, and IT expenses.
• Looking into unrecognised intangibles, the researchers found in a random sample of 20 companies no instances of the disclosures recommended by EFRAG in 2021 and the AASB in 2022. The researchers then analysed the disclosures on certain intellectual capital activities to gain an understanding about specific unrecognised intangibles. Findings revealed that qualitative disclosures are more prevalent than quantitative.

Generally, the research showed that capitalised intangible assets are viewed as 'useful' by market participants and that companies with greater disclosures on unrecognised intangibles have a stronger association between capitalised intangibles and market value.

Regarding the intangibles disclosures by public benefit entities analysed with the help of a random sample of municipal councils and large charities, the research revealed that the frequency of capitalised intangibles is similar to that of the for-profit sector. However, there are differences in the intangibles capitalised, and they are of less relative economic importance.

The research concludes with some observations and suggestions based on the findings:

• Regarding the large range of terminology in intangible asset reporting one solution could be the use of digital reporting such as Core & More reporting.
• An expense disclosure approach would require mandating specified categories to ensure disclosure.
• Capitalising currently expensed intangible-related activities would reduce but not offset the information gap.
• Aligning intangible asset fair value criteria to IFRS 13 might be a relatively low-cost solution to reduce the information gap.
• Disclosure of unrecognised intangibles would also provide a better understanding of capitalised intangible assets.

As a solution to the current unsatisfying reporting of intangibles two measures were suggested for intangibles with partial markets: Allowing the revaluation model as an accounting policy choice and allowing estimation of fair value under IFRS 13 along with appropriate disclosures of judgments and estimates. To achieve this, the IASB could amend IAS 38 to provide alternative criteria to “active market” such as “freely transferable” and “commonly traded”. The IASB could develop indicators to assist entities in determining whether the revaluation model policy choice was available. A longer term project could be to consider measurement for “unique” intangibles referred to in IAS 38.

The research, which was led by Professor Tom Scott and Zeting Zang of Auckland University of Technology in conjunction with Dr Laura Mehnaz (Massey University), is available on SSRN.