Accounting Treatments for Identifiable Intangible Assets
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). However, opponents of IAS 38 argue that these rules for recognition are inconsistent because identifiable intangible assets are treated differently from other non-monetary assets (the Group of 100, 2000, online). For instance, internally generated intangibles such as brands, mastheads and publishing titles may satisfy the definition of an "asset" but are not permitted to be recognised as separate assets according to IAS 38. In the case of Telstra, assets like brand names and customer bases were recorded as intangibles although they have been developed internally by the company.
As for the measurement of intangible assets, paragraph 22 of IAS 38 requires an intangible asset be measured initially at cost (IASB, 2002, online). In Australia, the principles for accounting for acquired assets, including intangibles, are stated in AASB 1015 that acquired assets should be recorded at the cost of acquisition (Knapp & Kemp, 2003, p.305). Arguments against this rule suggest that the initial recognition rule should be at cost or value (Leo, 1999, p.31). In Australian practice, however, intangible assets are generally measured at cost concerning the requirements of the accounting standard. Examples are given as the adoption of above three companies.
Secondly, there are also pro and con arguments with respect to the necessity of amortising intangible assets. On one hand, amortisation is generally mandatory according to accounting standards. Intangible assets are required in paragraph 79 of IAS 38 to be amortised over the best estimate of its useful life (IASB, 2002, online). The halted ED 49 proposed that identifiable intangible assets with finite lives should consequently be amortised over the period of time during which benefits from the assets are expected to arise (Alfredson, 2001, p.13). As given above, amortisation is adopted by Telstra and Land Lease following the rules in AASB 1021.
On the other hand, however, some commentators argue that the amortisation requirement should not be compulsory. The Group of 100 believes that identifiable intangible assets that have indefinite lives should not be subject to mandatory amortisation, but that an annual impairment test should be applied to ensure the carrying amount of the asset is recoverable (2000, online). In practices, according to a survey of Australian company reporting involving the top 150 Australian holding companies reporting over the years 1993 to 1996 by Tibbits, a number of companies stated their intentions not to amortise their intangible assets [next page]