It is important that companies provide the necessary information about intangible assets. They should include this in a report and value it based on certain conditions. There are basically two types of systems used in financial reporting, namely:
- IAS;
- And IFRS.
IAS 38 is the platform that contains the right criteria for this so that you can comply with the rules set. However, the words intangible asset deserve some clarification from our side. Basically, it is nothing but an identifiable non-monetary asset without physical substance. Such assets are identifiable if they are separable or arise from contractual or other legal rights. Examples of intangible assets are computer software, licenses, trademarks, patents, films, copyrights and import quotas. Some things cannot be accounted for in IAS 38, so IFRS 3 is used for these. Consider goodwill acquired in a business combination. Although internally generated goodwill is within the scope of IAS 38, it is not an identifiable source of an asset and is not recognized as an asset.
The cost of creating an intangible asset internally is often difficult to distinguish from the cost of maintaining or enhancing an entity’s operations or goodwill. Therefore, private brands, publishing rights, customer base, etc. are not considered intangible assets. Manufacturing costs for other internally generated intangible assets are allocated to the research or development phase. Research costs are recognized as an expense. Development costs that meet certain criteria are capitalized as cost of intangible assets.
What to know about the history of IAS 38
It has been some time now since IAS 38 intangible assets was adopted. This was done in April 2001 by the International Accounting Standards Board (Board). This did take some time, as it was issued by the International Accounting Standards Committee back in 1998. This standard replaced IAS 9 Research and Development Expenditures, published in 1993. It in turn replaced an earlier version of this program adopted back in July 1978. The latter version was called Acounting for Research and Development Activities.
The Council amended IAS 38 in March 2004 as part of the first phase of the business combination project. In January 2008, the Council amended IAS 38 again as part of the second phase of the business combination project.
In May 2014, the Council amended IAS 38 to clarify when it is appropriate to use an income-based depreciation method.
To conclude: briefly about IAS 38
The purpose of IAS 38 is to prescribe how to account for intangible assets that are not specifically covered by another IFRS. This standard requires companies to recognize intangible assets only if certain criteria are met. The standard also specifies how the carrying value of intangible assets is determined and requires certain disclosures about intangible assets.
You’ve now been able to read about IAS 38, the system used as a guide to accounting for intangible assets not covered by IFRS. We have given you a detailed explanation of what is involved, as well as a brief history. For many who are not familiar with this subject this will be complicated, so we advise you to take another look at our website: annualreporting.info.
