IAS 38 - Intangible Assets - 10 November 1998

10 November 1998

Mr. K. Spencer
Chairman
Australian Accounting Standards Board
211 Hawthorn Road
Caulfield Vic 3162

Dear Ken

Intangible Assets

The Group of 100 has reviewed IAS 38 "Intangible Assets" and is concerned about several aspects of its requirements. These concerns were reinforced following presentations on IAS 38 to the Victorian, New South Wales, Queensland and South Australian Chapters by Paul Sutcliffe, Director of Accounting Practice, Australian Accounting Research Foundation.

The Group of 100 is particularly concerned about the following requirements of IAS 38:

a. the stringent requirements relating to the revaluation of intangible assets. The Group of 100 believes that if revaluations are undertaken, they should be applied consistently irrespective of the type of non-current asset concerned. The Group of 100 does not accept that a different set of requirements should apply in respect of the revaluation of intangible assets;

b. the prohibition of the recognition of some internally generated intangible assets such as brands, mastheads, publishing titles etc and the effective prohibition of the recognition of other internally generated intangible assets as a result of the discriminatory application of revaluation rules and the proscription of reinstatement of costs previously written off as expenses;

c. the amortisation requirements particularly the requirements that identifiable intangible assets not having a finite useful life be amortised and that for purposes of amortisation the residual value of an intangible asset, in all practical respects, is assumed to be zero. The Group of 100 believes that the assumption of a zero residual value is unrealistic because a primary motivation of directors is to maintain and enhance the value of these assets that are integral to the viability of their business. The Group of 100 believes that identifiable intangible assets which have lives that are indeterminate or very long should not be subject to mandatory amortisation, but that an annual impairment test should be applied to determine whether the carrying amount is recoverable; and

d. the transitional requirements which, if adopted in Australia, would have significant impact on the balance sheets of those companies which have developed and recognised internally generated assets and those which have acquired and subsequently revalued intangible assets.

The Group of 100 recommends that any proposals to harmonise with the requirements of IAS 38 should be subject to extensive debate and due process so that the implications for Australian companies can be fully appreciated.

Please find enclosed Group of 100 submissions to the IASC on E60 "Intangible Assets" and E50 "Intangible Assets" including a Statement of Principles prepared by a Group of 100 Working Party.

While having a strong commitment to the international harmonisation program, the Group of 100 supports an extension of the timetable to permit companies more time to consider the implications of the proposed changes to Australian requirements and the timing of their implementation. Where the proposed requirements differ from those in the major capital markets the implementation date of revised and new standards should be deferred until IOSCO has endorsed IASC standards and that endorsement has been accepted by the United States Securities and Exchange Commission for cross border capital raisings in the USA. The Group of 100 believes that an outcome of the endorsement of IASC standards for these purposes should be that foreign entities will not need to provide reconciliations to US GAAP in those instances where the endorsed IASC standards include requirements which differ from US GAAP.

If you have any questions about our views do not hesitate to contact me (089 327 4276)

Yours sincerely,

Bryce JH Denison
National President