The accounting normal Setters are encouraged to use a disclosure first approach to promote the recognition and accounting of intangible assets, according to the report of the CFA Institute Research and Policy Center.
The report, entitled Investor Perspectives: Immoustible Assets, noted that the Financial Accounting Standards Board (FASB) and International Accounting Standards Board (IASB) are currently performing an evaluation of how immaterial assets are justified.
The report also suggests that the current accountability for internally generated intangible assets must be phased, based on precedents such as shares -based compensation and accounting of the real value, which started with disclosure improvements.
This phased approach is expected to facilitate more productive discussions and will lead to ultimate recognition in financial statements.
Currently, intangible assets that have been acquired in business combinations are capitalized, while they are taken internally as made as made.
However, the study showed that more than 70% of the respondents believe that the most valuable assets of many companies are not reflected in the balance sheet.
It also showed that 39% of the respondents found the current disclosures useful.
CFA Institute Senior Director, Global Advocacy Matthew Winters, said: “Many of the stakeholders – mainly investors – who try to resolve this mystery, want a broader capitalization of immaterial assets to properly reflect the sources of value on balance sheets and treat consistenter with a tasting citizen.
“However, others do not agree. They believe that capitalization would not offer more useful information than float, and that the conservatism and the uniformity of the current rules are good things. Opponents also claim that providing more flexibility in capitalization of companies could have the perverse effect of greater profit management.”
The report indicates more than 80% consensus for better disclosures and more detailed reporting of investments in intangible matters between financial statements.
Although there is a consensus about the need for better disclosure, opinions differ on how internally generated immaterial assets should be treated, according to the survey.
More than 70% supports the constant individual recognition of identifiable immaterial activities during acquisitions, but there are concern about the transparency and timeliness of limitation tests.
Opinions are also divided on the fact that they must use costs or real value models for measuring such assets if recognized.
Investors call for action from the FASB and IASB to prevent financial statements from losing relevance as a result of an outdated intangible asset posture.
