After a decade of gestation, the international standard on intangibles has been released. But is it suitable for Australia? Colin Parker and Daen Soukseun examine IAS 38.
The new International Accounting Standard IAS 38 ‘Intangible Assets ‘ will fundamentally alter the way Australian reporting entities account and report intangibles (including research and development expenditure) if the Australian Accounting Standards Board and the Public Sector Accounting Standards Board harmonise with IAS 38. The ‘automatic’ adoption of IAS 38 in Australia would result in derecognition of many existing intangible assets, far fewer new intangibles being recognised as assets, decreased operating results as costs associated with the developing intangibles would be expensed, and less information to users of financial reports. Companies engaged in the communications and research and development would be particularly affected.
The release of IAS 38 by the International Accounting Standards Committee (IASC) is now being viewed with increasing concern as the Boards turn their attention to the Australian version. The requirements contained in IAS 38 are inconsistent with existing practices in Australia, yet we have no specific Accounting Standard addressing intangibles. In 1989, Exposure Draft ED 49 ‘Accounting for Identifiable Intangible Assets’ was issued, but stalled due to a lack of consensus – and we may yet rue the lost opportunity. To advance the debate, the CPA Australia’s External Reporting Centre of Excellence released in 1995 ‘Accounting for Identifiable Intangibles and Goodwill’ which, inter alia, contained recommendations in the development of a standard both at a national and international level. The monograph, written by Leo, Radford and Hoggett, was the basis for the CPA Australia’s submission on E50 ‘Intangibles’, subsequently IAS 38.
Definition and application .
IAS 38 defines an intangible asset as an ‘identifiable non-monetary asset without physical substance held for use in the production or supply of goods or services, for rental to others, or for administrative purposes’.