RECOGNITION Criteria of Intangible Asset

An intangible asset is an identifiable non-monetary asset without physical substance.

The recognition of an item as an intangible asset requires an entity to demonstrate that the item meets :

1. the definition of an intangible assets (par. 8-17 of IAS 38); and
2. the recognition criteria (par. 21-23 of IAS 38)

Entities frequently expend resources, or incur liabilities, on the acquisition, development, maintenance or enhancement of intangible resources such as scientific or technical knowledge, design and implementation of new processes or system, licenses, intellectual property, market knowledge and trademarks (including brand names and publishing titles). Common examples of items encompassed by these broad headings are computer software, patents, copyrights, motion picture films, customer lists, mortgage servicing rights, fishing licenses, import quotas, franchises, customer or supplier relationship, customer loyalty, market share and market rights (IAS 38 par. 9).

Not all the items described above meet the definition of an intangible asset, ie identifiability, control over a resource and existence of future economic benefits. If an item within the scope of this Standard (IAS 38) does not meet the definition of an intangible asset, expenditure to acquire it or generate it internally is recognised as an expense when it is incurred. However, if the item is acquired in a business combination, it forms part of the goodwill recognised at the acquisition date (IAS 38 par. 10).

IDENTIFIABILITY. The definition of an intangible asset requires an intangible asset to be identifiable to distinguish it from goodwill.

IAS 38 states that an asset is identifiable if it either :

1. is separable, ie is capable of being separated or divided from the entity and sold, transferred, licensed, rented or exchanged, either individually or together with a related contract, asset or liability); or
2. arises from contractual or other legal rights, regardless of whether those rights are transferable or separable from the entity or from other rights and obligations

CONTROL. An entity controls an asset if the entity has the power to obtain the future economic benefits flowing from the underlying resource and to restrict the access of others to those benefits. Normally, enterprises register patents, copyrights, etc to ensure control over these intangible assets, although entities often have to engage in litigation to preserve that control.

FUTURE ECONOMIC BENEFITS. Generally an asset is recognised only if it is probable that future economic benefits specifically associated therewith will flow to the reporting entity, and the cost of the asset can be measured reliably.

Par. 21 of IAS 38 states that an intangible asset shall be recognised if, and only if :

1. it is probable that the expected future economic benefits that are attributable to the asset will flow to the entity; and
2. the cost of the asset can be measured reliably.

An entity shall assess the probability of expected future economic benefits using reasonable and supportable assumptions that represent management’s best estimate of the set of economic conditions that will exist over the useful life of the asset (IAS 38 par. 22).

An entity uses judgment to assess the degree of certainty attached to the flow of future economic benefits that are attributable to the use of the asset on the basis of the evidence available at the time of initial recognition, giving greater weight to external evidence (IAS 38 par. 23) (HRD).

The proposal of the changes to the presentation of items of Other Comprehensive Income

This is an IFRS email alert which just dropped into my inbox today, May 27, 2010. It’s about the proposal of the changes to the presentation of items of Other Comprehensive Income. Just proceed below to read more :

The International Accounting Standards Board (IASB) published today a proposal to improve the consistency of how items of Other Comprehensive Income (OCI) are presented.

The IASB is proposing to require that entities present profit or loss and other comprehensive income in separate sections of a continuous statement. The IASB is also proposing to group items in OCI on the basis of whether they will eventually be ‘recycled’ into the profit or loss section of the income statement.

The exposure draft, Presentation of Items of Other Comprehensive Income - Proposed Amendments to IAS 1, is open for comment until 30 September 2010. .

More information:

• Read the press release.
• Read the Snapshot, a short introduction to the document.
• Visit the project page

Access the document online:

• To access the document visit the "Get involved / Comment on a proposal" section on www.iasb.org
• If you are an eIFRS/Comprehensive subscriber, you can also view the document in the 'Latest Additions' section of eIFRS (you will be required to provide your login details).

IFRSs in Your Pocket 2010

Deloitte's IFRS Global Office has published the nineth edition of our popular guide to IFRSs - IFRSs in Your Pocket 2010.

This 132-page guide includes information about:

• IASB structure and contact details
• IASB due process
• Use of IFRSs around the world, including updates on Europe, Asia, USA and Canada
• Summaries of each IASB Standard and Interpretation, as well as the Framework and the Preface to IFRSs
• Background and current status of all current IASB projects
• IASC and IASB chronology
• Update on IFRS-US GAAP convergence
• Other useful IASB-related information

Source : Deloitte - IAS Plus.com

User questionnaire for Fair Value Option exposure draft

On 24 May 2010 the International Accounting Standards Board (IASB) produced a questionnaire for financial statement users on its May 2010 exposure draft Fair Value Option for Financial Liabilities.

The IASB asks analysts to complete the questionnaire to provide input on the proposals in the exposure draft on the fair value option. This questionnaire, targeted at analysts, forms part of a comprehensive programme of outreach activities to all IFRS constituents.

Responses to the questionnaire must be received by 16 July 2010. Click here for more information.

IASB published its proposed changes to the accounting for financial liabilities

IASB on May 11, 2010 announced a press release concerning the changes to the accounting for liabilities based on IFRS 9 Financial Instruments.

The International Accounting Standards Board (IASB) today published for public comment its proposed changes to the accounting for financial liabilities. This proposal follows work already completed on the classification and measurement of financial assets (IFRS 9 Financial Instruments).

The IASB is proposing limited changes to the accounting for liabilities, with changes to the fair value option. The proposals respond to the view expressed by many investors and others in the extensive consultations that the IASB has undertaken—that volatility in profit or loss resulting from changes in the credit risk of liabilities that an entity chooses to measure at fair value is counter-intuitive and does not provide useful information to investors.

When the IASB introduced IFRS 9 many stakeholders around the world advised the IASB that the existing requirements for financial liabilities work well, except for the effects of changes in the credit risk of a financial liability (‘own credit’) that an entity chooses to measure at fair value.

Building on that global consultation on IFRS 9, the IASB sought the views of investors, preparers, audit firms, regulators and others on the ‘own credit’ issue. The views received were consistent with the earlier consultations—that volatility in profit or loss resulting from changes in ‘own credit’ does not provide useful information except for derivatives and liabilities that are held for trading.

The IASB is therefore proposing that all gains and losses resulting from changes in ‘own credit’ for financial liabilities that an entity chooses to measure at fair value should be transferred to ‘other comprehensive income’. Changes in ‘own credit’ will therefore not affect reported profit or loss.

No other changes are proposed for financial liabilities. Therefore, the proposals will affect only those entities that choose to apply the fair value option to their financial liabilities. Importantly, those who prefer to bifurcate financial liabilities when relevant may continue to do so. That is consistent with the widespread view that the existing requirements for financial liabilities work well, other than the ‘own credit’ issue that these proposals cover.

Commenting on the proposals, Sir David Tweedie, Chairman of the IASB, said:

Whilst there are theoretical arguments for treating financial assets and liabilities in the same way it is hard to defend the accounting as providing useful information when a company suffering deterioration in credit quality is able to book a corresponding large profit, especially when investors tell us that such information is often excluded from their financial models.

An IASB ‘Snapshot’, a high level summary of the proposals, is available to download free of charge from the IASB website at http://go.iasb.org/financial+liabilities.

The exposure draft Fair Value Option for Financial Liabilities is open for comment until 16 July 2010. It can be accessed via the ‘Comment on a proposal’ section on www.iasb.org from today.

Source : www.IASB.org

IFRS for SMEs, who can use this standard ?

Previously, on July 09, 2009 the IASB has published IFRS for SMEs.

This IFRS was designed for use by small and medium-sized entities (SMEs). Within this of about 230 pages tailored standards, many of the principles in full version of IFRSs for recognising and measuring assets, liabilities, income and expenses have been simplified, topics not relevant to SMEs have been omitted, and the number of required disclosures has been significantly reduced.

So, what is the criteria of small and medium-sized entities who this standards applicable to ?

The definition of Small and medium-sized entities (SMEs) based on this standard are entities that :

(a) do not have public accountability, and

(b) publish general purpose financial statements for external users. Examples of external users include owners who are not involved in managing the business, existing and potential creditors, and credit rating agencies.

An entity has public accountability if :

(a) its debt or equity instruments are traded in a public market or it is in the process of issuing such intruments for trading in a public market (a domestic or foreign stock exchange or an over-the counter market, including local and regional markets), or

(b) it holds assets in a fiduciary capacity for a broad group of outsiders as one of its primary businesses. This is typically the case for banks, credit unions, insurance companies, securities brokers/dealers, mutual funds and investment banks.

Some entities may also hold assets in a fiduciary capacity for a broad group of outsiders because they hold and manage financial resources entrusted to them by clients, customers or members not involved in the management of the entity. However, if they do so for reasons incidental to a primary business (as, for example, may be the case for travel or real estate agents, schools, charitable organisations, co-operative enterprises requiring a nominal membership deposit, and sellers that receive payment in advance of delivery of the goods or services such as utility companies), that does not make them publicly accountable.

If a publicly accountable entity uses this IFRS, its financial statements shall not be described as conforming to the IFRS for SMEs - even if law or regulation in its jurisdiction permits or requires this IFRS to be used by publicly accountable entities.

A subsidiary whose parent uses full IFRSs, or that is part of a consolidated group that uses full IFRSs, is not prohibited from using this IFRS in its own financial statements if that subsidiary by itself does not have public accountability. If its financial statements are described as conforming to the IFRS for SMEs, it must comply with all of the provisions of this IFRS.

The complete IFRS for SMEs (together with the basis for conclusions, illustrative financial statements, and a presentation and disclosure checklist) can be downloaded free of charge from here : http://go.iasb.org/IFRSforSMEs.

Related articles :

1. New Option for Private Companies in Streamlined IFRS (JofA)
2. Private Companies Get IFRS Made Easy (CFO.com)

Download from here : Deloitte - IFRS for SMEs in your pocket