les.
Developing countries
Developing countries often seek international financing sources for their development. It is important for their governments and accounting regulating bodies to adopt international accounting standards in order to make it easier for them to access international financing sources.
Stock exchanges
The use of international accounting principles can enable the internationalization of Stock exchanges which can in turn increase international financing activity.
This essay will make particular reference to the UK equivalent of accounting standards i.e., the
Financial Reporting Standards (FRSs) to examine the different accounting treatments in the individual accounting standards of interest in this assignment.
IAS 38 - Accounting for intangible assets
Definition: An intangible asset is an identifiable monetary asset without physical substance. An asset is a resource that that is controlled by the enterprise as a result of past events and from which future economic benefits are expected [IAS 38.8].
The objective of IAS 38 is to prescribe the accounting treatment for intangible assets that are not dealt with specifically in another IAS. The standard deals with:
the criteria to be met before an enterprise can recognise an intangible asset;
how to measure the carrying amount of intangible assets and the disclosures that needs to be made.
Examples of assets that may qualify as intangible assets under IAS 38 are:
computer software, copyrights, customer and supplier relationships, franchises, licenses, rights patents.
The three critical attributes of intangible assets are:
Identifiability: In order for an intangible asset to be identifiable, it must be separable and it arises from contractual or other legal rights, regardless of whether those rights are transferable or separable from the entity or from other rights and obligations. (IAS 38.12)
Control (power to obtain benefits from the asset)
An intangible asset must be under the control of the enterprise in order for it to have the power to obtain future economic benefits from the asset. Control will usually but not necessarily emanate from legally enforceable rights, in the absence of which it is more difficult to prove the existence of an asset. For example, control over technical know-how is deemed to exist only if it is protected by legal right such as a copyright or patent.
Recognition and measurement: IAS 38 stipulates that an intangible asset should be recognised only if both of the following occur:
It is possible that the future economic benefits that are attributable to the asset will flow to the entity, and
The cost can be reliably measured.
The cost of an asset must be reliably measured if the asset is acquired in a normal transaction. Also, the fact that a price has been paid for the asset, is a reflection of the expectation that future economic benefits will flow to the entity.
Goodwill and brand image
In order for goodwill and brand image to be classified as intangible assets and included as assets of the enterprise, they need to be identified separately. If goodwill and brands have been acquired externally, then their cost and existence can be identified and capitalised. As regards internally generated goodwill, it cannot be recognised as an asset because:
it is not separable from the business
it has not arise
