Recognition and Reporting of Intangible Assets

by Jennifer Burns - Date: 2007-02-24 - Word Count: 415 Share This!

When reporting financial information on intangible assets, an accountant should follow the recognition criteria. Intangible assets whether self-created or purchased should be reported under the two following conditions: the cost of the assets can be measured adequately and the future economic benefits from using the asset will be realized. Due to the fact that recognition of internally generated intangible assets involves uncertainties when it comes to evaluation, there are additional guidelines for reporting . The estimation of future economic benefits resulting from usage of an internally generated intangible asset should be based on reasonable estimation of the benefits to be realized during the lifetime of an asset.

The probability criterion for acquired assets is automatically satisfied whether an asset is purchased in a business combination or separately. In case if the mentioned above criterion is not met, an intangible asset should be expensed when it is incurred, according to the matching principle. There are two cases when it is impossible to reasonably evaluate an intangible asset. The first case is related to inability of an accountant to measure an intangible asset as it cannot be separated from the company. The second case refers to inability of an accountant to adequately measure as a result of lack of history of similar transaction in the industry.

Evidently, the present reporting principles regarding intangible assets fail to recognize their objective value thus making financial information irrelevant for its users. Aside from the general reporting principles that fail to consider the value of intangible assets when it comes to financial reporting, there is another notion regarding the industry practice. Voluntarily disclosures of intangible assets are not wide spread among companies due to the fact that costs associated with disclosure outweigh the benefits resulting from it. Costs associated with disclosure of intangible assets include the costs of measure of intangible assets owned by the company as well as costs associated with disclosure of the information to company's competitors.

The fact that disclosure of intangible assets is not widely practiced signifies that the economic costs of revealing information to the competitors significantly outweigh the benefits. The reason of low benefits can result from imprecise measurement when employing the widely accepted measurement criteria. This feature further contributes to "information asymmetries" between internal and external information users that, in turn, contributes to violation of the principles of prudence and objective reporting. Thus, when implementing new principles of intangible assets reporting, the guidelines issuer should be concerned with the notion of voluntarily reporting stimulation.

Related Tags: company, assets, accounting, principle

Jennifer Burns is a staff academic writer at, university level essay writing service. Jennifer provides writing help and support to students who buy college essay and custom research paper.

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