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IFRS Round Table IAS 38: Intangible Assets

IFRS Round Table IAS 38: Intangible Assets. David Jones Head of Finance 24 th & 27 th September 2007. Summary of IAS 38: Intangible Assets (1). Definition of Intangible Asset “An identifiable non-monetary asset without physical substance” Recognition Criteria

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IFRS Round Table IAS 38: Intangible Assets

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  1. IFRS Round TableIAS 38: Intangible Assets David Jones Head of Finance 24th & 27th September 2007

  2. Summary of IAS 38: Intangible Assets (1) Definition of Intangible Asset “An identifiable non-monetary asset without physical substance” Recognition Criteria • Must be separable from the underlying business (ie. the asset must be capable of being sold, licensed or rented); • Must have legal or contractual control over the asset; • Must deliver future economic benefits; • Must be able to reliably measure the cost of the asset; • Must be technically feasible; and • Must demonstrate that the asset will be resourced to completion / bring into service.

  3. Summary of IAS 38: Intangible Assets (2) Measurement Criteria • Bring onto the balance sheet at cost, including: • Direct Materials/ contractor services • Direct Staff costs • Direct Legal costs • Overhead allocation, where appropriate; • Subsequently carry on the balance sheet at cost or valuation; • Amortise over useful economic life; • Apply impairment test to ensure continuing economic benefit. First-time Adoption of IAS 38 • Prospective recognition (in accordance with IFRS 1)

  4. Application of IAS 38 by Private Sector since 2005 Research & Development Expenditure: IAS 38 removes the SSAP13 choice as to whether to capitalise development expenditure. Eg Rolls Royce plc capitalise applied engineering and certification fees. Data & Information Assets: • Reuters plc capitalise expenditure on new or substantially improved data products. • GUS plc (Experian) recognise data purchase and data capture costs of internally developed databases. Software: capitalise as intangible if separately identifiable from the associated hardware. Both purchased and internally developed. Websites: capitalise only where directly income-generating (SIC 32). Other: goodwill, brands, customer relationships (eg. WPP Group plc)

  5. Interpretation in the Draft I-FReM I-FReM has adopted IAS 38 in full with the following adaptations: • Option to carry asset at cost has been withdrawn. Intangible Assets must be re-valued at each balance sheet date following their initial capitalisation at cost. • Where there is no active market to enable the valuation of the intangible asset, Depreciated Replacement Cost (DRC) may be used as a proxy for fair value. • Indices may be used to assess DRC.

  6. IAS 38: Issues for Public Sector Recognition: • Determining the date from which recognition criteria are met; • Develop internal governance structures over programmes or development activities (eg Investment Boards); • Identifying direct economic benefits of an asset where there are no income streams; • Classifying expenditure between enhancement and routine maintenance. Measurement of Cost / Valuation: • May require revisions to internal accounting such as project costing, to enable capture of discrete cost categories such as staff costs, contractors, overhead allocation; • Annual valuation: often there will be no active market for public sector assets, so DRC needs to be captured and indices applied. First-time Adoption: • Recognition and disclosure of possible Prior-Year Adjustments to 2007/08 comparatives; • Stakeholder understanding of change in accounting policy.

  7. References • Draft I-FReM • IAS 38 – Intangible Assets • IAS 16 – Property, Plant and Equipment • IFRS 1 – First-Time Adoption of IFRS • SIC 32 – Intangible Assets - Website costs • Annual Reports & Accounts: • Reuters Group plc • GUS plc (Experian) • Rolls Royce plc • WPP Group plc

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