Major Review of Intangible Assets Standard Launches

The International Accounting Standards Board (IASB) will start its review of its accounting standard on intangible assets, the board said on April 23. The review comes as the board heard that the standard does not result in enough information about internally generated intangible assets, which are key value drivers of businesses. The review will assess whether the requirements of International Accounting Standard (IAS) 38, Intangible Assets, “remain relevant and continue to fairly reflect current business models or whether to improve the requirements,” the board said. IAS 38 was adopted by the board in 2001. The standard sets out the criteria for recognizing and measuring intangible assets and requires disclosures about them. An intangible asset is defined as “an identifiable non-monetary asset without physical substance.” Such an asset is “identifiable when it is separable, or when it arises from contractual or other legal rights,” a board summary explains. “Separable assets can be sold, transferred, licensed, etc.” Examples of intangible assets include computer software, licenses, trademarks, patents, films, copyrights and import quotas. A project on intangible assets was rated as a high priority by respondents to the IASB’s Request for Information, Third Agenda Consultation, including users of financial statements, according to meeting papers.

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FASB Headed in Right Direction on Accounting Rules for Government Grants

FASB’s advisers on private company issues said they agree with the board’s direction on accounting for government grants, a project to develop a recognition standard in US GAAP, as there currently is none. The board’s plan to utilize the IASB’s standard on government grants to craft a standard makes sense as those rules are known and used, Private Company Council (PCC) members said on April 19. “I think that by taking that standard as a starting point, and making specific improvements will certainly ease and reduce the number of implementation differences between the two standards,” Douglas Uhl, director, corporate accounting policy at Chick-fil-A, Inc., said. In general, PCC members don’t think that reporting differences should be carved out for private companies from public companies, according to the discussions. No major red flags were raised. “You might have a little more difficulty in interpretation of the income allocation—obviously simpler is better but other than that I don’t see that there’s special private company considerations on this issue,” Holly Nelson, chief executive officer at Key Advisory Services, said. “I agree,” added Robert Messer, senior executive vice president, chief financial officer-chief risk officer at American National Bank of Texas. “The key is understanding if the contingency is being met and how they’re accounting and disclosing those for the private companies that we deal with.” If developed, the new rules will piggyback on narrow disclosure provisions that were published in 2021.

Credit Loss Accounting Rules Might be Amended for Short-Term Receivables, Contract Assets

Private companies could get an amendment to credit loss accounting rules that are applied to short-term trade accounts receivable (AR) and contract assets, FASB advisers signaled. Private Company Council (PCC) members favor developing an accounting workaround to credit loss accounting rules, stressing on April 19 that following the “trade AR” guidance in this area is not worth the cost. No decisions were made. “We’ve heard a lot of private companies say they’re doing a lot of work,” Douglas Uhl, director, corporate accounting policy at Chick-fil-A, Inc., said. “It’s a big documentation hurdle for no difference in accounting and there is a big day one impact which a lot of us have gone through but there is a continual ongoing impact of having to update your expected loss rates and for companies with short-term trade AR, it’s very, very rarely going to be material,” he said. I think it should hopefully be something we should be able to move fast on and would hopefully provide a lot of simplification.” The topic topped a list of seven flagged for potential change to U.S. GAAP for private companies. “Just to simplify that a lot would probably be extremely beneficial, especially with all the heavy lifting to get to a nominal change or position at all,” David Finkelstein, director with SingerLewak LLP, said. The issue is being raised at a time when private companies are still in the process of adopting Accounting Standards Update (ASU) 2016-13, Financial Instruments–Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which took effect last year for private companies. The standard is also on the FASB’s post-implementation review (PIR).