In contrast to several decades ago, intangible assets are becoming increasingly important to the value and operations of many organizations. For many organization's this represents a significant proportion of the total assets of an organization. That is, intangible assets are of central importance to so many organizations. The rapidly changing technologies and markets have emphasized the value of many organizations is more linked to various knowledge-based assets, rather than to assets with physical form.

The value of many organizations, such as Facebook, eBay, Twitter and Google —which can be in the many billions of dollars—is due to knowledge that has been used to develop the various technologies/platforms they use. With greater value being attributed to intangible assets, there is a consequent need for sound financial information about such assets

Required:

1-You are required to provide an analysis of an organization's financials in a report format.

2-Select an organization that has significant intangible assets and extract the statement of financial position (balance sheet) and notes from the Annual Report to analyze the Intangible assets.

3-Analyse the identifiable and unidentifiable intangible assets recognized for accounting purposes.

4-Your report should include the following:

 Introduction: introduces the topic and issues to be discussed.

 Body: discussion of the issues and auditing/ fraud implications. Include subheadings that

address each issue.

 Conclusion

 Recommendations

5. Include the following points in your report:



-The conceptual frameworks definition and recognition criteria for assets.

- AASB 138 applies to intangible assets generally in addition to a number of paragraphs that relate specifically to research and development.

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- The accounting standard for intangibles(AASB 138) resulted in many valuable internally generated intangibles not being permitted to be recognized for statement of financial position purposes. Discuss how this has reduced the value or ‘relevance’ of statements of financial position in relation to providing information about the resources under the control of the reporting entity

- Particular accounting rules—as stipulated in accounting standards—influence the behaviors and strategies of corporate management.

 - New accounting rules developed by accounting standard-setters, cause real changes in managerial behavior (changes that are not always necessarily positive). Discuss how this emphasizes the point that accounting is both a technical and social practice.

- As a result of adopting IFRSs, in most cases where intangible assets are recognized they will be recorded at cost, less accumulated amortization and less accumulated impairment losses, rather than being shown at their fair value. Discuss how this has undermined the qualitative characteristic of ‘relevance’—one of the two fundamental qualitative characteristics that useful financial accounting information is expected to possess.

- For the sake of enhancing international comparability, Australia and other countries that have adopted IFRSs have embraced a less-than-ideal accounting standard. Reflect upon whether the rules actually make any sense, or what the limitations inherent in the rules might be.

- Issues associated with the recognition and measurement of intangible assets are tending to become more important across time. But the new breed of cyber-investors are placing their bets fairly and squarely on an intangible asset—a company’s intellectual capital.

- Financial statement readers will not be able to know about certain intangible assets—for example, about the value of copyrights or brand names—because the related expenditure to develop the ‘assets’ internally has to be expensed as incurred, despite the fact that such ‘assets’ will in many cases be expected to generate future economic benefits.

- In relation to research and development, the requirement that all research be written off as incurred is very conservative and, again, means that financial statement users will not be able to differentiate between entities that have expended resources on research that is expected to culminate in economic benefits and those that have incurred expenditure that is not expected to generate economic benefits.

- Requiring organizations involved in research and development to expense all research as incurred might discourage them from undertaking certain research given the impacts such activities will have on corporate profits. Such an eventuality is obviously not in the interests of the nation given the benefits that successful research might bring.

-Accounting standards require expenditure on many intangible assets to be expensed, with the result that many valuable intangible assets will not appear in statements of financial position (balance sheets).

- It is questionable whether an accounting rule that requires all internally generated intangibles (with the exception of those intangible assets that can be generated by ‘development expenditure’) to be written off, even when there is an expectation that future economic benefits will be derived, will provide information that is useful to financial statement users.

-The incentive for managers to manipulate discretionary expenditures, such as deciding to undertake new research and development activities.

-IFRS-adopting countries have become less competitive in terms of research and development now that all research must be expensed as incurred. What do you think?

-Discuss the mechanistic tendencies with respect to the accounting treatment of research and development expenditures and the relationship between accounting method changes and market prices.

- Discuss the similarity between the predictions of the mechanistic hypothesis and the predictions of Positive Accounting Theory.

-Positive Accounting theorists might argue that accounting methods that lead to an increase in income and assets will reduce the likelihood of firms breaching accounting-based debt covenants and this in itself might lead to a reduction in cash outflows and, consequently, to an increase in the value of the firm’s securities.

- The future economic success of many organizations will be influenced by the quantum and type of research and development they are undertaking. Discuss how it is useful to understand how the information about their research and development is recognized, measured and disclosed for financial reporting purposes.

-‘Goodwill’ is permitted to be recognized for accounting purposes only when it has been externally acquired, not when it has been internally generated.

-Goodwill is an asset that appears in many financial statements and it often has a large monetary value attributed to it. Discuss the importance of being cautious in interpreting or even considering the actual value of goodwill relative to what is being reported.

-Discuss how the requirements relating to impairment testing of goodwill, entice corporate managers to opportunistically decide if, and when, goodwill impairment losses will be recognized.

-Will the balance sheet report the economic value of all of an organization's intangible assets?

-Provide an argument in support of the accounting requirement that research is to be expensed as incurred. Do you think this requirement is overly ‘conservative’?

Answer rating: 100% (QA)

Introduction This report provides an analysis of an organizations financials in terms of their intangible assets It discusses the conceptual frameworks definition and recognition criteria for assets t... View the full answer