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 However, it was withdrawn in 1992 due to a lack of consensus (Belkaoui & Jones, 1996, p.484).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).
As there is no separate standard for identifiable intangible assets apart from research and development costs, the accounting treatments for such assets should be subject to other related standards including AASB 1010 Recoverable Amount of Non-current Assets, AASB 1015 Acquisitions of Assets, AASB 1021 Depreciation and AASB 1041 Revaluation of Non-current Assets. AASB 1010 states that a non-current asset measured on cost basis should be written down to its recoverable amount which is less than its carrying amount (Knapp & Kemp, 2003, p.227). AASB 1015 requires assets be recorded at the cost of acquisition (Knapp & Kemp, 2003, p.305). As per AASB 1021, non-current assets with limited useful lives should be depreciated over those useful lives (Knapp & Kemp, 2003, p.507). In AASB 1041, non-current assets are required to be measured at either cost or fair value (Knapp & Kemp, 2003, p.969).
The cases to be analysed below are Telstra Corporation Limited (TLS), Lend Lease Corporation (LLC) and Amalgamated Holdings Ltd (AHD), all of which are Australian publicly listed companies. For the purposes [next page]