accounting for intangible assets

| June 19, 2015

accounting for intangible assets

Paper instructions:

Case study # 8 on page 435 in Chapter 9 of your Text book: Leo, Hoggett and Sweeting, 9th edition 2012. Case title: Accounting for intangible assets.

This assignment is about the financial reporting (measurement and recognition) issues on intangible assets. This assignment requires: (i) an analysis of the case through a critical review of

relevant accounting standards; (ii) critical evaluation of academic literature and (iii) an empirical investigation on reporting practice of intangible assets.  This assignment is to be prepared with

the help of materials covered in Chapter 5 (Fair Value Measurement), Chapter 9 (Intangible Assets), and Chapter 11 (Impairment of Assets) of the prescribed textbook, Company Accounting, 9th

(2012) edition by Leo, Hoggett and Sweeting, as well as appropriate journal articles on this topic. A minimum of six journal articles is to be used in this assignment. Full references of the articles

used must be provided.


The nature of investment in assets made by entities has changed significantly in recent decades In addition to investment in traditional (tangible) assets several investments in intangible

capital have become increasingly important factor of production. For example, according to an OECD survey, in 2007 the total expenditure made by companies in intangible capital was far

greater than the investment in tangible capital in developed countries such as United States, Australia and European Countries.

Despite the increased significance of intangible assets, as the source of the firm`s value and future revenue, these investments are unrecorded on the statement of financial position. Some

commentators have attributed this to the restrictive requirements imposed by accounting rules in most countries, for the recognition of intangible investments as assets in the financial

statements. The current accounting rules do not allow companies to capitalise a substantial part of investments in intangibles and to report them as assets in the balance sheet. Consequently,

numerous calls have been made for accounting reforms in many countries, with claims that historical cost approach has outlived its usefulness. One of the claims made by Baruch Lev, who is a

professor of accounting at New York University and a globally known academic for his research on financial reporting for intangibles, is that the economy has changed in fundamentally, that

businesses are now fundamentally “knowledge-based’ rather than industrial and that intangibles are new drivers of the economic activity. He asserts that current accounting practice leads to

systematic undervaluation of intangibles by investors.

This case may have major implications and ramifications for measurement and disclosure of intangibles.
Read the abovementioned case, related accounting standards, evaluate the arguments and counter arguments, and research other relevant materials. The assignment is to be prepared as a

‘report’ format that adequately answers the following specific questions in your own words:

1.    What are the main features of an intangible asset, as laid out in AASB 138 Intangible Assets. Explain how Pics Ltd‘s) expenditures on intangibles should be accounted for under AASB 138

Intangible Assets. Give sufficient reasons in support of your answer.                                (10 marks)

2.    The case indicates, Pics Ltd’s 2005 ‘statement of financial position reported $7.5 million of marketing costs as non-current assets and investors are uneasy about this reporting practice of

the firm’. Suppose you are a Chief Financial Officer (CFO) of Pics Ltd, what business and accounting rationales can you provide to convince the investors, in your upcoming conference call, about

the appropriateness of capitalisation of marketing cost?                                                            (9 marks)

3.    The background, on accounting for intangibles, provided above suggests “most intangible assets are not reported on balance sheet because of restrictive rules imposed by accounting

standards. Therefore, calls have been made for reforms of accounting for intangibles in many countries”.  Evaluate the arguments in favour of reforms for current reporting practices for

intangibles and then critically examine the various proposals for the reform of accounting for intangibles in Anglo-American and European countries. Do you see these policy recommendations

will resolve the main issues of intangible reporting? Why, or why not?
(10 marks)

4.    Collect the 2013 annual reports for the following listed companies ANTISENSE THERAPEUTICS LIMITED (ASX CODE: APN) and AGENIX LIMITED (ASX CODE: AGX) and search for any disclosure

regarding the intangible assets. In relation to intangible disclosures: (i) identify any differences and similarities in terms of adequacy (ii) Can you provide any reasons that would explain the

reporting differences you have observed?                                                          (8 marks)


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Bonn, T & Fisher, J. 2011. Sustainability: the missing ingredient in strategy. Journal of Business Strategy, 32(1)5-14

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