The Board considered a paper prepared by the Australian Accounting Standards Board (AASB) staff on transitional arrangements for intangible assets under IFRS 1.

Current Australian GAAP permits entities to recognise an intangible item as an intangible asset when that item satisfies:

• the definition of an asset; and
• the general asset recognition criteria.

These criteria apply irrespective of the derivation of the intangible item. Therefore, Australian reporting entities are able to recognise intangible assets that cannot be recognised under IAS 38 and which would consequently be derecognised on adoption of IFRSs under IFRS 1.

The AASB staff believes that derecognition of certain internally generated intangible assets and past fair value revaluations on transition to IFRS would result in less useful information being provided to users of financial statements and ultimately compromise the relevance of financial statements.

This may lead to differences between comparable entities dependent on whether they can link the recognition or revaluation of these intangible assets to a specific event as allowed under IFRS 1.

The AASB therefore proposed that IFRS 1 be amended as follows:

"A first-time adopter may elect to recognise in its opening IFRS balance sheet an intangible asset that was recognised under its previous GAAP if that intangible asset meets:

(a) the definition of an intangible asset in IAS 38 Intangible Assets ;and

(b) the asset recognition criteria within the Framework for the Preparation and Presentation of Financial Statements.

The first-time adopter shall continue to recognise the intangible asset at its carrying amount immediately before the date of transition to IFRSs when the carrying amount:

(a) is based on:

i. cost and is broadly comparable to cost, or amortised cost under IFRSs; or

ii. revalued amount, and the revaluation is either an independently determined valuation that is broadly comparable to fair value at the date of the revaluation, or is supportable by a current independent valuation; and

(b) has been subject to impairment considerations since the date of initial measurement or the date of revaluation."

The Board clarified that to use the exemption in paragraph 19 of IFRS 1 the prior valuation had to constitute deemed cost at the time of the valuation and the transaction at the time of the valuation should be one that establishes the overall value of the entity similiar to a business combination.

The Board did not support (14-0) the proposed amendment to IFRS 1 but noted that there is a project on Intangible Assets that may change the accounting for these assets in the future.

It was noted that the IFRIC would be asked to clarify the interpretation of paragraph 19 of IFRS 1.