The Importance of Intangible Assets
The Importance of Intangible Assets
Evaluation of Transitional Issues from a Canadian Standpoint
Contents
Topic Page
1. Executive Summary 3
2. Report
I. The Trade-off Between Relevance and Reliability 4
II. "Nothings" are Something to Consider 5
III. Current Practice in Canada 5
IV. The Challenge of Valuation 6
V. Analysis of Potential Improvements to Canadian Standards 7
Issue One - Valuation
Valuation and Business Combinations
Solution to Valuation Issues
Issue Two - Improved Transparency
Recommendation for Improved Transparency VI. Comparison of Canada, USA, and International Standards 9 Goodwill and Initial Measurement
Impairment Testing
Intangible Assets Recognition
Impairment Rules
Amortization of Finite Lives Intangible Assets
Impairment Testing of Indefinite Lives Intangible Assets
Business Combination
3. Bibliography 14
Executive Summary
While intangible assets are proving to become more significant in their role in business today, the policies and practices used in accounting for them seems to fall short when it comes to representing the needs of users of the financial statements. Many significant intangible assets go unrecognized on financial statements due to the current accounting standards. Due to the importance of these intangibles to many companies, the identification of them would better satisfy the needs of financial statement users. However, a trade off between reliability and relevance exists when trying to account for certain intangible assets. Traditional accounting standards stressing reliable information may be too conservative when considering intangible assets. Conversely, recognizing intangible assets may provide relevant information to users, but prove to be unreliable when more information is available. However,
Evaluation of Transitional Issues from a Canadian Standpoint
Contents
Topic Page
1. Executive Summary 3
2. Report
I. The Trade-off Between Relevance and Reliability 4
II. "Nothings" are Something to Consider 5
III. Current Practice in Canada 5
IV. The Challenge of Valuation 6
V. Analysis of Potential Improvements to Canadian Standards 7
Issue One - Valuation
Valuation and Business Combinations
Solution to Valuation Issues
Issue Two - Improved Transparency
Recommendation for Improved Transparency VI. Comparison of Canada, USA, and International Standards 9 Goodwill and Initial Measurement
Impairment Testing
Intangible Assets Recognition
Impairment Rules
Amortization of Finite Lives Intangible Assets
Impairment Testing of Indefinite Lives Intangible Assets
Business Combination
3. Bibliography 14
Executive Summary
While intangible assets are proving to become more significant in their role in business today, the policies and practices used in accounting for them seems to fall short when it comes to representing the needs of users of the financial statements. Many significant intangible assets go unrecognized on financial statements due to the current accounting standards. Due to the importance of these intangibles to many companies, the identification of them would better satisfy the needs of financial statement users. However, a trade off between reliability and relevance exists when trying to account for certain intangible assets. Traditional accounting standards stressing reliable information may be too conservative when considering intangible assets. Conversely, recognizing intangible assets may provide relevant information to users, but prove to be unreliable when more information is available. However,
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