Intangible Assets Essay -- Business, Accounting

INTRODUCTION According to Yale’s School of Management Robert Swieringa (1997), â€Å"We come to an age of technology, information, and global competition with a financial accounting model that was fashioned almost 100 years ago.† That same accounting model continues to evolve today. One area in particular is with accounting for intangible assets. In the business sector, assets are important economic resources and are classified as either tangible or intangible. Tangible assets are easily seen as physical objects that include items such as buildings, machinery, vehicles, and fixtures. Because of their nature, tangible assets are straightforwardly accounted for on financial statements. However, intangible assets cannot be seen and when it comes to accounting for them, a major issue that has plagued the business world for many years is how to recognize and account for them (Hadjiloucas and Winter, 2005). What this says is that the financial statements of one company will look different in another territory using their accounting rules. With that said, this paper will examine how intangible assets are currently viewed and accounted for as well as any changes to the accounting model. INTANGIBLE ASSETS Intangible assets can no longer be overlooked. Eighty percent of the market value of public companies is made up of intangible assets (Osterland, 2001). In fact, the Harvard Management Update (2001) points out that the value of intangible assets, on average, has become three times greater than physical assets. Accounting issues related to intangible assets have always been present, but now these issues are being moved to the forefront. Despite the many years that businesses and regulating bodies have wrangled with the nature of... ... agreed deal. Furthermore, both U.S. GAAP and IFRS expense internally generated assets. IAS 38 differentiates between research and development and all costs pertaining to research are expensed as they are incurred. However, any costs seen during development are only capitalized when a firm demonstrates that certain criteria are met. As a result, according to Hadjiloucase and Winter (2005), after an acquisition any profits under U.S. GAAP take an immediate hit, while profits under IFRS take a few years to smooth over. In comparison, under U.S. GAAP, any costs that are internally generated are not capitalized unless a specific rule requires it. An example of this would be with the development of software. Under U.S. GAAP, software can be distinguished between software that is developed for sale to third parties and software that is developed for internal use.