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Accounting Treatments for Identifiable Intangible Assets.

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Introduction

Accounting Treatments for Identifiable Intangible Assets Currently in Australia, there is no single accounting standard specifically handling the issue of accounting for identifiable intangible assets other than research and development costs. In 1989, the Australian Accounting Research Foundation (AARF) issued an exposure draft ED 49 Accounting for Identifiable Intangible Asset, covering a vast range of identifiable intangibles, which included, but was not restricted to, brand names, franchises, licence agreements, copyrights, intellectual property, mastheads, trademarks and patents. However, it was withdrawn in 1992 due to a lack of consensus (Belkaoui & Jones, 1996, p.484). Because of the absence of special standards, accounting treatments for these identifiable intangible assets could be selective and thus creative. It may be necessary to take further action to develop an accounting standard on this issue in Australia. Although intangible assets are often referred to in the literature and in the financial reports of many entities, there seems to be not a unanimous definition for such assets. According to Henderson & Peirson, intangible assets can be defined as rights rather than objects (2002, p.370). However, International Accounting Standard (IAS) defines an intangible asset as an identifiable non-monetary asset without physical substance (IASB, 2002, online). The elusive definitions of identifiable intangible assets contribute to the inconsistency of accounting treatments for such assets. This essay sets out to discuss some arguments about the accounting treatments for identifiable intangible assets based on the analyses of three Australian publicly listed company cases, and analyse some possible recommendations for the new standard. Case studies of three Australian publicly listed companies As per IAS 38 Intangible Assets, examples of possible intangible assets include: - computer software - patents - copyrights - motion picture films - customer lists - mortgage servicing rights - licences - import quotas - franchises - customer and supplier relationships - marketing rights (IASB, 2002, online). ...read more.

Middle

Also, there is a slight difference between the useful lives determined by Telstra and Land Lease. The former amortised its intangible assets over the period of expected benefit based mainly on their legal lives, while the latter amortised its patent over 3 years, which was much shorter than its legal life. Arguments about these accounting treatments in companies' reports In the next part, both positive and negative sides of the arguments with respect to the recognition and subsequent amortisation of identifiable intangible assets in these three companies' annual reports are to be discussed. Analyses would be undertaken regarding to two sections: recognition and amortisation of identifiable intangible assets. Firstly, an asset is recognised in the statement of financial position when and only when it meets the recognition criteria (Greaves et al. 2003, p.3-7). As per ED 49, an identifiable intangible asset is to be brought to account where (a) the future benefits of the identifiable intangible asset are probably to eventuate, and (b) it possesses a cost or other value that can be measured reliably (Alfredson, 2001, p.13). By and large, existing financial statements often recognise only those assets that are acquired externally. Arguments encompass the extent of the recognition and the value recognised of identifiable intangible assets. To some extent, internally developed intangible assets will often not be easy to measure reliably because they may not be able to associate directly with transactions of the entity (Alfredson, 2001, p.13). IAS 38 issued by the International Accounting Standards Committee (IASC) puts some restrictions on the recognition of internally generated intangible assets. Paragraph 45 states that internally generated brands, mastheads, publishing titles, customer lists and items similar in substance should not be recognised as intangible assets (Leo, 1999, p.30). ...read more.

Conclusion

Meanwhile, academics could well play a role by conducting relevant empirical studies. But, above all, the AASB must have the resolve to finalize the task. Alfredson, K. 2001, "Accounting for identifiable intangibles: An unfinished standard-setting task", Australian Accounting Review, vol. 11, no. 2, Reading 7-3 in ACCT20039 Accounting Theory: Resource Materials, 2003, Central Queensland University, Rockhampton. Belkaoui, A. R. & Jones, S. 1996, Accounting Theory, 1st Australian edn, Harcourt Brace & Company, Australia, Marrickville. Greaves, M., Whitwell, R., Baxter, P. & Harreveld, D. 2003, ACCT20039 Accounting Theory: Study Guide, Central Queensland University, Rockhampton. The Group of 100, 2000, Accounting for Identifiable Intangible Assets, [online]. Available at URL: http://www.group100.com.au/submissions/sub_20000525_aasb_iia-ias38.htm (Accessed at 2 May 2003). Henderson, S. & Peirson, G. 2002, Issues in Financial Accounting, 10th edn, Pearson Education Australia, NSW. International Accounting Standards Board (IASB) 2002, Summary of IAS 38, [online]. Available at URL: http://www.iasplus.com/standard/ias38.htm (Accessed at 4 May 2003). Knapp, J. & Kemp, S. (eds.) 2003, Accounting Handbook 2003, Pearson Education Australia, Sydney. Leo, K. 1999, "Intangible assets and goodwill", in Financial Accounting Issues, eds K. Leo et al., John Wiley and Sons, Brisbane, Reading 7-1 in ACCT20039 Accounting Theory: Resource Materials, 2003, Central Queensland University, Rockhampton. Leo, K. 1999, "Intangible assets: Seeking consistency", Australian CPA, vol. 69, no. 10, Reading 7-2 in ACCT20039 Accounting Theory: Resource Materials, 2003, Central Queensland University, Rockhampton. Leo, K. J., Hoggett, J. R. & Radford, J. 1995, Accounting for Identifiable Intangibles and Goodwill, Australian Society of Certified Practising Accountants, Melbourne. Parker, C. & Soukseun, D. 1998, IAS 38: how tangible is the Intangible Standard?, [online]. Available at URL: http://www.cpaonline.com.au/Archive/9812/pg_aa9812_ias38.html (Accessed at 3 May 2003). Upton, W. S. 2001, "Special Report: Business and Financial Reporting, Challenges from the New Economy", Financial Accounting Series, April, no. 219-A. ...read more.

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