Accounting Intangibles: Reporting Standards Case StudyWhy does the author suggest that IFRS3/AASB 3 for business combinations fundamentally changes the way intangible assets are recognized measured and treated. Prior to the introduction of the IFRS3/AASB 3, the reporting of the intangible assets was neglected in most cases and only goodwill used to appear in balance sheets. Things like trade names and brand names were not reported in the balance sheets. While the auditors were doing their audits, they used to ignore them since they hardly ever changed the financial position of business. Auditors concentrated more on the liquid assets.
There are speculations that these intangible assets might offset many balance sheets in many companies since most of the balance sheets will now have a richer debit side. To make sure that the balance sheets balance, the accountants and auditors will have to incorporate a figure to represent these tangible assets on the side of capital. Some of the companies may take advantage of these intangible assets to boost their weak asset figures and they may easily lure investors into investing in their companies promising great return on investment and since the IFRS3/AASB 3 continue to the effective after every other accounting period from when they were introduced, the investors might not realize that there is an inflation on the asset figure that was not there prior to the IFRS3/AASB 3.Intangible asset recognition, according to the author has always been done at the discretion of the company and it has not been revealed while announcing accounting results.
In many cases, the intangible assets were even given value zero mostly because they have all along been part of the business and the acquisition of the same was done cheaply, long time ago.
Appreciation of the intangible assets has all along been ignored and therefore even the valuation of the same becomes a hard task. Now that the new financial reporting standards are in place, places like United States have seen negative consequences after they have inflated the intangible assets while they were reported and thus they have given the investors a false position of the business. This has consequently turned against them since most of the investors have distanced from such companies and thus a contributor to the downfall of a number of companies that could have been saved by investors during the recession. In Australia, the companies are still cautious about the new reporting standards and the valuation.
They want to be sure that these standards will not affect their business both in the short and the long run. Explain the concept of identifiable intangible assets and ‘separability’. Identifiable intangible assets are the assets that the business has but they are not liquid so it is impossible for the business to sell them.
They become identifiable when it is possible for the auditors to ascertain them a value that will appear on the balance sheet at the end of the financial statement. They are usually dormant assets and they only appear at the end of the financial period. They therefore do not affect any change of business strategy within the company though they are considered in case of a merger or when a business s being sold. This makes them identifiable and they are even used as consideration when discussing the capital of a business (IASB, 05).