This paper discuses the problems created by the International Accounting Standard (IAS) 38, which prescribes the accounting treatment for intangible assets such as products of the company's research.
Written in 2008; 1,940 words; 4 sources; APA; $ 61.95
Paper Summary:
This paper explains that the balance sheet provides next to no use in reporting the increasingly significant intangible assets of business entities. The author points out that intangible assets, such as a highly-talented workforce who generate more revenue, represent the major value-drivers of today's economy. The paper relates that attempts to modify the traditional accounting approach have not kept pace with the changes brought bought by these intangibles. The author believes that the new rules penalize the companies, which have experienced a loss of value in their intangible assets through write-offs that immediately reduce earnings. The paper states that the best solution is to recognize intangible assets in the financial statement including the ones developed in-house; however, entities must report the future performance of their intangible assets or their earning potential before they are tested for possible impairment.
Table of Contents:
IAS 38: Intangible Assets
Accounting Rules Fell Short in Valuing Intangibles
Goodwill & Intangibles
Consequences of New Rules
Summary
From the Paper:
"Most companies have avoided to report in a comprehensive way about their intangible assets as well as the total performance which includes any significant decrease in the value of the intangibles. These rights and the obligation to regularly valuate goodwill and intangible assets represent a major change in disclosure practice and will affect the behavior of both the managers and investors. When America Online and Time Warner merged, this merger quickly showed how goodwill accounting changes can affect shareholders' interest, and exposed the misjudgments of managers."
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