4Scope Intellectual property (“IP”) in general 3 broad categories: Research and developmentPatents, copyrights, brand names, trade secrets, trade marks, franchises, concessions, operating right or right of useComputer software (developed internally or acquired from a third party)
5Key definitionsAn 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 purposesUseful life is the period of time over which an asset is expected to be used by the entityResearch is original and planned investigation undertaken with the prospect of gaining new scientific or technical knowledge and understandingDevelopment 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
6Scope Fall back on IAS 38 since no specific IPSAS Covers accounting for all Intangible Assets, excluding:GoodwillFinancial assetsMineral rights and other similar expenditureThose arising in insurance companies through contracts with policy holders
8Criteria for recognition NoDefined3. Capable of generating future economic benefits?Not an intangible assetNo2. Controlled?Yes4. Probable that future economic benefits will be generated?YesNoNoYes5. Cost reliably measured?1. Identifiable?Explain by reference to an example – e.g. computer softwareYesNoIntangible resourceNotrecognisedRecognisedYes
9Identifiable 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.
10ControlThe 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.Control of future economic benefits results from either the power to obtain them or the ability to restrict access of others.
11Future 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 enterpriseFor example, the use of intellectual property in a production process may reduce future production costs rather than increase future revenuesRequires the exercise of sound judgement based on verifiable information
12Measurement of cost Cost can be measured: Either directly (cost of acquisition of the asset when it is separately acquired); orIndirectly (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)
13Recognition – Internally generated intangible assets Internally generated goodwillInternally generated intangible assetsNO!Research phaseDevelopment phaseNO!Only if strict criteria met
14Research phase Examples of research activities: Activities aimed at obtaining new knowledgeThe search for, and evaluation and final selection of, applications of research findings or other knowledgeThe search for alternatives for materials, devices, products, processes, systems or servicesThe formulation, design, evaluation and final selection of possible alternatives for new or improved materials, devices, products, processes, systems or services
15Development phase Conditions to be met before capitalisation: Technical feasibility of completing the assetIntention to complete it and use/sell the assetAbility to use/sell the assetAn analysis of whether the asset will generate future economic benefitsAvailability of resources to complete the asset and to use/sell it ANDAbility to reliably measure the attributable expenditure
17Date for recognitionDuring 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 assetIf 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.
19continue to carry at cost* MeasurementThe E.C.s’ choiceBenchmark treatmentcontinue to carry at cost*Subsequent costs: expense (unless can prove enhanced economic benefits)Initial measurement: costAlternative treatmentcarry at re-valued amount*by reference to active marketImpairment testing if indicators are present that suggest that the carrying amount of an intangible asset may exceed its recoverable amount.* less amortisation and impairment provisions
20Cost of internally generated intangible assets Cost = directly attributable expenditureBegin when asset first meets recognition criteriaCannot back-date to include costs expensed previouslySpecific costs CANNOT be capitalisedStart-up costsTraining activitiesAdvertising/promotional activitiesRe-locating/re-organising costs
21Measurement - amortisation PresumptionRebuttalEvidence must be persuasiveDisclose evidence& perform annual impairment testUEL ≤ 20 yearsUEL > 20 yearsAmortise over UEL
22Measurement – disposal Gain/loss = Net Disposal Proceeds – Carrying AmountRecognise in economic outturn account
24Major disclosures Internally generated Acquired Disclose separatelyUseful lives or amortisation ratesGross opening & closing balancesReconciliation of movements in yearRe-valued intangiblesAlso, R&D costs expensed in the period
255. Specific implications and next steps Intangible Assets5. Specific implications and next steps
26Proposed E.C. general accounting policies Computer softwareSoftware 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 developmentResearch 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 assetsExpenditure to acquire patents, trademarks and licenses is capitalized and amortized using the straight-line method over their useful lives, but not exceeding 20 years.
27Compliance issues Issue As per former regulation As per IPSAS Accounting rules EC transition period 5 yearsInternally developed softwareExpensedCapitalise if identifiable, controlled, future economic benefits and measurable costexpensedDevelopment costsAssets under constructionN/ATo be disclosed as a separate category within intangible assetsAmortisation rulesFull year from the date when the asset is available for usePro-rata temporis from the date when the asset is available for use