Internal accounting for internally generated intangible assets

ACCA is pleased to have this opportunity to comment on the above discussion paper (DP) which was considered by ACCA's Financial Reporting Committee.

The DP's starting premise is that the manner by which an intangible item comes into existence is not relevant to the determination of whether an item can be identified as an asset.

We have considerable sympathy for this view and the problems which may be raised by the inconsistency of the current models in requiring recognition of intangible assets when purchased or when they are the development costs of new products or services, but not when otherwise internally generated. We also accept the conceptual advantages of the valuation model set out in the DP as opposed to the cost model.

There are significant issues however with the proposals which in our view make it difficult to progress them.

• It is unclear whether the information that would be provided by the proposed model would be useful to users. We note for example the reservations of users in Paragraph 24 of the DP.
• The costs of providing the information might be significant, especially if the valuation model were required, and these need to be weighed against the benefits if any.
• Furthermore there are major practical difficulties as well as costs in trying to provide reliable valuations of the intangible assets that will be accepted by users.

The DP spent inadequate attention to these fundamental issues which are needed to justify the changes proposed in the first place.

• Furthermore the timing of the proposals is not right to be taken forward at this point.
• There has been a loss of confidence in using values for accounting and this has not yet been remedied.

Also the DP's proposals are substantially based on the recognition and measurement of intangible assets (separately from goodwill) in IFRS3. In our view there needs to be more evidence gathered and assessment of how well IFRS3 has been working and in particular on the increased recognition of separate intangible assets. This work may help to justify the model proposed for internally generated intangibles and allay concerns over the reliability of the valuations used.

We noted the suggestion explored in paragraphs 252 and 253 of starting with a disclosure-only system for reporting internally generated intangible assets. That seems a sensible suggestion, though we would support such information provided outside the financial statements in the management commentary section or equivalent.

Last updated: 12 Apr 2012