AASB SURVEY: Is there a gap in the information provided to the users of financial statements in relation to Intangible Assets?

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* 1.
Background
Financial reporting of intangibles is prescribed by AASB 138 Intangible Assets. Operative since 2005, it incorporates International Accounting Standards Board’s IAS 38 of the same name.

Intangibles are non-monetary assets without physical substance and are identifiable (ie separable or arise from legal rights). Examples of intangibles include brands, mastheads and customer lists.

The scope of this survey is limited to intangibles (emphasising those that are internally generated). It excludes acquired and internally generated goodwill.

Intangibles meeting AASB 138’s balance sheet recognition criteria are:
- initially measured at cost
- subsequently measured at cost or fair value - amortised on a systematic basis over their useful lives (if useful life is limited) or not amortised (if useful life is indefinite)
- subject to AASB 136 Impairment of Assets (AASB 136).

AASB 138 requires many acquired intangibles to be recognised in the balance sheet whereas many of the same kinds of assets, if internally generated, are prohibited from being recognised. Furthermore, even where intangibles are recognised, many of them are not permitted to be subsequently revalued upwards to fair values.

Despite the absence of information resulting from non-recognition of so many intangibles, AASB 138 only requires limited disclosures about them in financial statements; and in some cases only encourages disclosures.

A question arises as to whether AASB 138 results in users getting an appropriate amount of information in financial statements, especially about internally generated intangibles. Should AASB 138 be amended with the objective of improving the quality of information?

Objective
Our aim is to gain a better understanding of your view on issues that arise in accounting for intangibles. Your response will assist us formulate a Thought Piece to assist the AASB’s deliberations and serve as an input to a submission to the IASB’s Agenda Consultation later this year.

Format and protocols
This survey is expected to take approximately 30-45 minutes to complete and consists of multiple-choice and open-ended questions. Although some questions might appear to overlap and be repetitive, each is designed to discern your view on particular aspects of the current requirements.

If you prefer not to complete the survey online, feel free to either (a) access a MS Word Version (https://www.aasb.gov.au/admin/file/content102/c3/AASBIntangiblesSurvey_Mar2021.docx) and email your answers to Rabin (rjogarajan@aasb.gov.au); or (b) contact rjogarajan@aasb.gov.au for a virtual interview based on the survey.

Responses will be treated as confidential. Asterisks indicate questions that require an answer before the whole survey can be submitted. Given their nature, Survey Monkey does not allow us to asterisk some questions. Despite this, we’d appreciate you responding to ALL questions before hitting submit.

As a user of financial statements, have you used the information about intangibles currently required or encouraged by Australian Accounting Standards (or equivalent national or international Standards) to be provided in financial statements?

Yes

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* 2. What type of user of financial statements do you classify yourself as? Select all that apply:

Academic/Researcher

Advisor

Analyst

Creditor/Lender/Banker

Employee

Insurer

Investor

Journalist/Reporter

Potential Investor

Rating Agency

Regulator/Government Agency

Valuer

Other (please specify)

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* 3. Do the views expressed in this survey represent:

your personal views

the views of your organisation?

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* 4. Even if the responses do not represent your organisation’s views, please state the name of your employer (if any)

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* 5. Which specific industry sector(s) with significant intangible assets are you most interested in? (e.g., financial services, mining, construction, technology, communication, healthcare). Please specify, or else indicate you have a broad/general interest:

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* 6. What level of experience do you have with dealing with businesses with significant intangible assets, including using their financial statements?

Basic experience

Novice (say 1-2 years)

Intermediate (say 3-5 years)

Advanced (say 6-10 years)

Expert (say greater than 10 years)

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* 7. What are the main types of intangible assets you are familiar with? Select all that apply:

Brands

Copyrights

Customer lists

Development costs

Licences

Mastheads

Patents

Production/Import/Export quotas

Publishing titles

Research/intellectual capital

Trademarks

Other (please specify)

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* 8. This question and questions 9-11 focus on whether you agree with the current accounting requirements applicable to intangible assets.

Please read the following brief background information before answering questions 8-11:

AASB 138 prescribes the financial statements’ definition, recognition, measurement and disclosure requirements applicable to intangible assets.

As noted in the introductory material to this survey above, intangible assets are non-monetary assets without physical substance and are identifiable (i.e., separable or arise from legal rights).

AASB 138 requires many acquired intangible assets to be recognised in the balance sheet whereas many of the same kinds of assets, if internally generated, are prohibited from being so recognised.

All entities with intangible assets that meet the balance sheet recognition requirements in AASB 138 are:

initially measured at cost

subsequently measured at cost or, only where there is an active market, are permitted to be measured at fair value

amortised on a systematic basis over their useful lives (if they have a finite useful life, e.g., patents, licences, trademarks, copyright) or not amortised (if they have an indefinite useful life, e.g., perpetual franchises, perpetual trademarks)

subject to various disclosure requirements (with some relief for entities that do not have public accountability)

subject to the impairment requirements of AASB 136 Impairment of Assets.

Publicly accountable entities (an example of a publicly accountable entity is one that has issued equity or debt that is traded in a public market) with intangible assets that fail the balance sheet recognition requirements in AASB 138 are:

encouraged to disclose a brief description of significant intangible assets not recognised as assets because they did not meet the recognition criteria.

Do you agree with the existing AASB 138 prohibition on the recognition by all entities of internally generated intangible assets and the encouragement rather than a requirement for publicly accountable entities to disclose information about those unrecognised assets?

Yes

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* 9. Please state the reasons for your answer

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* 10. Do you agree with the existing AASB 138 restrictions on the subsequent revaluation of acquired intangible assets?

Yes

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* 11. Please state the reasons for your answer.

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* 12. Prior to undertaking this survey, were you aware that AASB 138 does not permit the recognition of internally generated intangible assets such as brands, mastheads, publishing titles, customer lists and items similar in substance?

Yes

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* 13. This question and questions 14 and 15 focus on your views about the gap between an entity’s market capitalisation and its book value.

Some argue the current accounting for internally generated intangible assets under AASB 138 inappropriately results in a significant gap between the book value and market capitalisation of listed entities because book value is much lower than market capitalisation.

Generally, how concerned are you about that gap? Please provide a score out of 5 stars, with 1 star being ‘not concerned at all’ and 5 stars being ‘extremely concerned’:

Not concerned at all

Extremely concerned

Not concerned at all

Extremely concerned

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* 14. Your reason for that score out of 5 stars.

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* 15. In relation to your own experience, irrespective of your response to Q13, please identify the particular industry sectors or even entities (if any) that give you your greatest concern about book value being significantly less than market capitalisation:

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* 16. This question and questions 17-19 focus on your view about the apparent asymmetry in current accounting requirements for intangible assets.

Please read the brief background information (in italics) before answering questions 16 and 17:

Some argue there is currently asymmetry in Australian Accounting Standards because many kinds of intangible assets are recognised if acquired (whether in a business combination or otherwise) but the same kinds of intangible assets cannot be recognised if they are internally generated.

Notwithstanding your answer to Q12, and irrespective of your answer to Q8, do you think the so called asymmetry in relation to the initial accounting for internally generated intangible assets (where any costs are expensed) compared with acquired intangible assets (where costs are capitalised) can be justified?

Yes

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* 17. Please provide a reason for your answer.

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* 18. Some argue there is currently asymmetry in Australian Accounting Standards because a recognised acquired intangible asset can only be subsequently revalued to fair value if an active market for the asset exists (which is considered uncommon for intangible assets) whereas there is no such limitation on tangible assets.

Notwithstanding your answer to Q10, do you think the so called asymmetry in relation to the subsequent accounting for recognised acquired intangible assets (where revaluations are significantly restricted) compared with tangible assets (where there are far fewer restrictions on revaluations) can be justified?

Yes

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* 19. Please provide a reason for your answer.

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* 20. This question and question 21 focuses on how useful you find information about intangible assets in financial statements prepared in accordance with Australian accounting standards relative to other sources of information.

How useful do you regard financial statements (including notes) that have been prepared in accordance with AASB 138 relative to other sources of information about internally generated intangible assets in your assessment/analysis of a business with significant unrecognised internally generated intangible assets? Please provide a score out of 5 stars, with 1 star being ‘not useful at all’ and 5 stars being ‘extremely useful’

Not useful at all

Extremely useful

Not useful at all

Extremely useful

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* 21. Your reasons for that score out of 5 stars.

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* 22. How useful do you regard financial statements (including notes) that have been prepared in accordance with AASB 138 relative to other sources of information about acquired intangible assets in your assessment/analysis of a business with significant recognised unrevalued acquired intangible assets? Please provide a score out of 5 stars, with 1 star being ‘not useful at all’ and 5 stars being ‘extremely useful’

Not useful at all

Extremely useful

Not useful at all

Extremely useful

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* 23. Your reasons for that score out of 5 stars:

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* 24. This question focuses on the other types of information you refer to in addition to financial statements.

It is not expected that financial statements would be meeting all of your information needs about internally generated intangible assets for a number of reasons, including:

AASB 138 does not allow recognition of, nor require disclosures about, many internally generated intangible assets

financial statements are produced infrequently

there is a lag between the reporting date and the issuance of financial statements.

How do you compensate for the lack of information in financial statements caused by AASB 138 disallowing the recognition of, and not requiring disclosures about internally generated intangible assets? Please select all that apply:

Other parts of the Annual Report such as the Directors’ Report, Management’s Discussion and Analysis, Chairman’s Statement

Analysts’ reports

Press releases

Media reports

Conference calls (i.e., earnings calls, significant events announcements, etc.,)

Investor relation programmes

Other (please specify)

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* 25. This question focuses on how you think intangible assets should be accounted for in financial statements.

This question asks you to identify the type of financial information about an entity’s internally generated intangible assets you’d want provided by audited financial statements, assuming you can supplement that information with information from other, perhaps more timely but less reliable, sources that are typically available, e.g., in the annual report or external sources (like press releases, analysts’ reports, conference calls [i.e., earnings calls, significant events announcements, etc.] and investor relation programmes).

The following lists different types of possible financial statements information from A to L where:

A to E contemplate recognition-based approaches
F to G contemplate disclosure-of-measurement-based approaches
H to J contemplate disclosure-without-measurement-based approaches
K to L contemplate other possible approaches.

From the list, please select THREE preferences

A: Initially recognised and measured at fair value and subsequently revalued at fair value, with related disclosures

B: Initially recognised and measured at fair value and not subsequently revalued at fair value, with related disclosures

C: Initially recognised and measured at cost and subsequently revalued at fair value, with related disclosures

D: Initially recognised and measured at cost, with an accounting policy choice of whether or not to be subsequently revalued at fair value, with related disclosures

E:Initially recognised and measured at cost and not subsequently revalued at fair value, with related disclosures

F: Not recognised, but instead narrative descriptions of the nature of each class of intangible asset. In addition, initial and subsequent disclosure of fair value (including valuation methodology and underlying significant estimates and judgements) in the notes to the financial statements

G: Not recognised, but instead narrative descriptions of the nature of each class of intangible asset. In addition, initial and subsequent disclosure of cost in the notes to the financial statements

H: Not recognised, but instead narrative descriptions of the nature of each class of intangible asset. In addition, initial and subsequent disclosure of some related financial information that might be pertinent to a user making their own estimate of fair value (e.g., indications of costs incurred during the reporting period) in the notes to the financial statements

I: Not recognised, but instead narrative descriptions in the notes to the financial statements of the nature of each class of intangible asset but without any financial information initially and subsequently

J: Not recognised, stick with the status quo (i.e., no changes are required to AASB 138)

K: Not recognised, financial statements are not the appropriate vehicle for conveying information about internally generated intangible assets

L. Other, within financial statements (please state, one only, in your response to question 26)

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* 26. Of the three preferences you identified in question 25, what is your FIRST preference. (If your first preference is L, please also describe it). Please also describe how you would make use of the information about intangible assets your first preference would provide.

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* 27. Please provide the reasons for your first preference.

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* 28. This question and question 29 focuses on the disclosures about unrecognised intangible assets you think should be made in financial statements.

If AASB 138 were to continue to disallow recognition of internally generated intangible assets in the balance sheet but was amended to require disclosures in the notes to the financial statements, what type of information about those assets should it require to be disclosed? Please select all that apply:

A) Estimates (by the directors’ or independent valuer) of the fair value of identifiable intangible assets not recognised in the financial statements, and include:

Basis of fair value measurement (e.g., relief from royalties for certain intangibles like brand names)
Key assumptions underlying the measurement method, similar to the requirements of AASB 13 Fair Value Measurement, which can be found on the AASB website at AASB13.pdf

B) Non-financial indicators (e.g., market size and share and customer retention data)

C) Information about internally generated intangible assets that are embedded in recognised tangible or financial assets (e.g., core deposit intangible assets)

D) Expenditures in relation to internally generated intangible assets, whether in aggregate or on a project-by-project basis

E) Intellectual capital statements, which can be used to show the intellectual capital of an entity. These statements might also help explain the difference between an entity’s market capitalisation and book value

F) The operating segments in which unrecognised intangible assets (e.g., brands) are used, where such segments can be clearly identified

G) Legal restrictions on the title of unrecognised intangible assets

H) Intentions to sell any unrecognised intangible assets

Other (please specify)

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* 29. Why do you need that information, and how would you use it?

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* 30. Which types of entities should be required to make such disclosures?

publicly accountable entities (e.g., an entity that has issued equity or debt that is traded in a public market)

non-publicly accountable entities

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* 31. Paragraph 128(b) of AASB 138 encourages publicly accountable entities to disclose “a brief description of significant intangible assets controlled by the entity but not recognised as assets because they did not meet the recognition criteria in this Standard”.

Has that encouragement ever provided you with useful information about unrecognised internally generated intangible assets?

Yes

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* 32. If your answer to Q31 is YES, can you please identify for us the name of a company or companies that have produced publicly available financial statements you regard as including a good example of such disclosures?

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* 33. You might have views pertinent to intangible assets that you don’t feel this survey has adequately canvassed. Please add any additional comments you would like to make here:

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* 34. Please provide the following contact information in the box below:

Name

Position

E-mail

Telephone number

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* 35. Are you happy for us to contact you to gain further details about your views?

Yes

If yes, please provide the dates and times that you will be available below:

AASB SURVEY: Is there a gap in the information provided to the users of financial statements in relation to Intangible Assets?

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* 2. What type of user of financial statements do you classify yourself as? Select all that apply:

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* 3. Do the views expressed in this survey represent:

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* 4. Even if the responses do not represent your organisation’s views, please state the name of your employer (if any)

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* 5. Which specific industry sector(s) with significant intangible assets are you most interested in? (e.g., financial services, mining, construction, technology, communication, healthcare). Please specify, or else indicate you have a broad/general interest:

Question Title

* 6. What level of experience do you have with dealing with businesses with significant intangible assets, including using their financial statements?

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* 7. What are the main types of intangible assets you are familiar with? Select all that apply:

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* 9. Please state the reasons for your answer

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* 10. Do you agree with the existing AASB 138 restrictions on the subsequent revaluation of acquired intangible assets?

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* 11. Please state the reasons for your answer.

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* 12. Prior to undertaking this survey, were you aware that AASB 138 does not permit the recognition of internally generated intangible assets such as brands, mastheads, publishing titles, customer lists and items similar in substance?

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* 14. Your reason for that score out of 5 stars.

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* 15. In relation to your own experience, irrespective of your response to Q13, please identify the particular industry sectors or even entities (if any) that give you your greatest concern about book value being significantly less than market capitalisation:

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* 17. Please provide a reason for your answer.

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* 19. Please provide a reason for your answer.

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* 21. Your reasons for that score out of 5 stars.

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* 23. Your reasons for that score out of 5 stars:

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* 26. Of the three preferences you identified in question 25, what is your FIRST preference. (If your first preference is L, please also describe it). Please also describe how you would make use of the information about intangible assets your first preference would provide.

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* 27. Please provide the reasons for your first preference.

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* 29. Why do you need that information, and how would you use it?

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* 30. Which types of entities should be required to make such disclosures?

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* 32. If your answer to Q31 is YES, can you please identify for us the name of a company or companies that have produced publicly available financial statements you regard as including a good example of such disclosures?

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* 33. You might have views pertinent to intangible assets that you don’t feel this survey has adequately canvassed. Please add any additional comments you would like to make here:

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* 34. Please provide the following contact information in the box below: NamePositionE-mail Telephone number

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* 35. Are you happy for us to contact you to gain further details about your views?

* 34. Please provide the following contact information in the box below:

Name

Position

E-mail

Telephone number