Presentation on theme: "PwC Intangible Assets 2 PwC Overview of session 1. Scope and key concepts 2. Recognition 3. Measurement 4. Disclosures 5. Specific."— Presentation transcript:
PwC Intangible Assets
2 PwC Overview of session 1. Scope and key concepts 2. Recognition 3. Measurement 4. Disclosures 5. Specific implications and next steps 6. Questions
PwC Intangible Assets 1. Scope and key concepts
4 PwC Scope Intellectual property (“IP”) in general 3 broad categories: –Research and development –Patents, copyrights, brand names, trade secrets, trade marks, franchises, concessions, operating right or right of use –Computer software (developed internally or acquired from a third party)
5 PwC Key definitions An intangible asset is an identifiable non-monetary asset without physical substance held for use in the production or supply of goods or services, for rental to others, or for administrative purposes Useful life is the period of time over which an asset is expected to be used by the entity Research is original and planned investigation undertaken with the prospect of gaining new scientific or technical knowledge and understanding Development is the application of research findings or other knowledge to a plan or design for the production of new or substantially improved materials, devices, products, processes, systems or services prior to the commencement of commercial production or use
6 PwC Scope Fall back on IAS 38 since no specific IPSAS Covers accounting for all Intangible Assets, excluding: –Goodwill –Financial assets –Mineral rights and other similar expenditure –Those arising in insurance companies through contracts with policy holders
PwC Intangible Assets 2. Recognition
8 PwC Criteria for recognition Intangible resource 3. Capable of generating future economic benefits? 1. Identifiable? 2. Controlled? Defined 4. Probable that future economic benefits will be generated? 5. Cost reliably measured? Not an intangible asset Recognised Not recognised Yes No Yes No Yes No
9 PwC Identifiable An asset is identifiable if it is separable: –An asset is separable if the enterprise could rent, sell, exchange or distribute the specific future economic benefits attributable to the asset without also disposing of future economic benefits that flow from other assets used in the same revenue earning activity. But an enterprise may be able to identify an asset in some other way: –For example, if an intangible asset is acquired with a group of assets, the transaction may involve the transfer of legal rights that enable an enterprise to identify the intangible asset.
10 PwC Control The capacity of an enterprise to control the future economic benefits from an intangible asset would normally stem from legal rights that are enforceable in a court of law (e.g. copyrights or a legal duty on employees to maintain confidentiality). In the absence of legal rights, it is more difficult to demonstrate control. However, legal enforceability of a right is not a necessary condition for control since an enterprise may be able to control the future economic benefits in some other way.
11 PwC Future economic benefits Future economic benefits flowing from an intangible asset may include revenue from the sale of products or services, cost savings, or other benefits resulting from the use of the asset by the enterprise –For example, the use of intellectual property in a production process may reduce future production costs rather than increase future revenues Requires the exercise of sound judgement based on verifiable information
12 PwC Measurement of cost Cost can be measured: –Either directly (cost of acquisition of the asset when it is separately acquired); or –Indirectly (e.g. by reference to an active market or using discounted cash flows techniques when the asset is acquired as part of a business combination)
13 PwC Recognition – Internally generated intangible assets Internally generated goodwill NO! Internally generated intangible assets Research phase Development phase NO! Only if strict criteria met
14 PwC Research phase Examples of research activities: –Activities aimed at obtaining new knowledge –The search for, and evaluation and final selection of, applications of research findings or other knowledge –The search for alternatives for materials, devices, products, processes, systems or services –The formulation, design, evaluation and final selection of possible alternatives for new or improved materials, devices, products, processes, systems or services
15 PwC Development phase Conditions to be met before capitalisation: –Technical feasibility of completing the asset –Intention to complete it and use/sell the asset –Ability to use/sell the asset –An analysis of whether the asset will generate future economic benefits –Availability of resources to complete the asset and to use/sell it AND –Ability to reliably measure the attributable expenditure
17 PwC Date for recognition During the year, the date of acquisition or date of entry shall correspond to the date on which the risks of ownership of the assets are transferred to the E.C., which in general corresponds to the accepted delivery of the asset If an item does not meet the definition of an intangible asset, expenditure to acquire it or generate it internally is recognised as an expense when incurred.
PwC Intangible Assets 3. Measurement
19 PwC Measurement Initial measurement: cost Subsequent costs: expense (unless can prove enhanced economic benefits) Benchmark treatment continue to carry at cost* Alternative treatment carry at re-valued amount* by reference to active market * less amortisation and impairment provisions The E.C.s’ choice
20 PwC Cost of internally generated intangible assets Cost = directly attributable expenditure Begin when asset first meets recognition criteria Cannot back-date to include costs expensed previously Specific costs CANNOT be capitalised –Start-up costs –Training activities –Advertising/promotional activities –Re-locating/re-organising costs
21 PwC Measurement - amortisation Presumption UEL ≤ 20 years Amortise over UEL Rebuttal UEL > 20 years Disclose evidence & perform annual impairment test Evidence must be persuasive
22 PwC Measurement – disposal Disposal –Gain/loss = Net Disposal Proceeds – Carrying Amount –Recognise in economic outturn account
PwC Intangible Assets 4. Disclosures
24 PwC Major disclosures Internally generated Acquired Useful lives or amortisation rates Gross opening & closing balances Reconciliation of movements in year Re-valued intangibles Disclose separately Also, R&D costs expensed in the period
PwC Intangible Assets 5. Specific implications and next steps
26 PwC Proposed E.C. general accounting policies Computer software Software are stated at historical cost less depreciation. Costs associated with maintaining computer software programmes are recognized as an expense as incurred. Expenditure, which enhances or extends the performance of computer software programmes beyond their original specifications is recognized as a capital improvement and added to the original cost of the software. Computer software recognized as assets are amortized using the straight-line method over their useful lives, not exceeding a period of 4 years. Research and development Research expenditure is recognized as an expense as incurred. Costs incurred on development projects are recognized as intangible assets when it is probable that the project will be a success considering its commercial and technological feasibility, and only if the cost can be measured reliably. Other development expenditures are recognized as an expense as incurred. Development costs previously recognized as an expense are not recognized as an asset in a subsequent period. Development costs that have been capitalized are amortized from the commencement of the commercial production of the product on a straight-line basis over the period of its expected benefit, not exceeding five years. Other intangible assets Expenditure to acquire patents, trademarks and licenses is capitalized and amortized using the straight-line method over their useful lives, but not exceeding 20 years.
27 PwC Compliance issues Issue As per former regulation As per IPSAS Accounting rules EC transition period 5 years Internally developed software Expensed Capitalise if identifiable, controlled, future economic benefits and measurable cost expensed Development costsExpensed Capitalise if identifiable, controlled, future economic benefits and measurable cost expensed Assets under constructionN/A To be disclosed as a separate category within intangible assets expensed Amortisation rulesFull year from the date when the asset is available for use Pro-rata temporis from the date when the asset is available for use