Members' Update

Bulletin to Members
December 2003

IASB Rejects Australian Proposals on Intangible Assets

Decision
Issue
Proposals to IASB
Potential Impact

Decision

The IASB, at its meeting on 17 December, unanimously rejected Australian proposals to amend IFRS 1 'First-time Adoption of International Financial Reporting Standards' to effectively 'grandfather' existing accounting for intangible assets on first-time adoption of IASB Standards.

Issue

Under Australian GAAP companies are able to recognise intangible assets, including internally developed intangible assets. Recognised intangible assets must be measured at cost or revalued amount being fair value.

These practices differ from the requirements of IAS 38 Intangible Assets in respect of recognition and the revaluation requirements.

Derecognition of certain internally developed intangible assets and past revaluations not satisfying IAS 38 would have significant adverse economic consequences for certain companies, resulting in less useful information to users and compromise the comparability and relevance of financial reports.

Proposals to IASB

The AASB Chairman and staff, by videoconference, presented proposals to the IASB that IFRS 1 be amended to allow a first-time adopter:

to recognise in its opening IFRS balance sheet an intangible asset recognised under its previous GAAP if that intangible asset meets the definition of an intangible asset in IAS 38 and IASB asset recognition criteria; and
to continue to recognise the intangible asset at its carrying amount immediately before the date of transition where:
- the carrying amount is based on cost (and is broadly comparable to cost, or amortised cost, under IFRS); or
- revalued amount (where independently determined and broadly comparable to fair value at the time of the revaluation or current independent valuation; and
- the asset has been subject to impairment assessments since the date of the initial measurement or the date of revaluation.

The IASB agreed to consider the proposed amendments following representations from Australian corporates with the support of the Group of 100 and participation of the AASB.

Potential Impact

The potential impact of the IASB's decision is that on first-time adoption of IFRSs, Australian companies face the prospect of:

derecognising/writing off internally generated intangible assets that do not meet the recognition requirements of IAS 38; and

reversing revaluations of intangible assets (purchased and internally generated) which do not satisfy the IAS 38 requirement that fair value be determined by reference to an active market.

Members will be informed of any subsequent developments.

Geoff Harris
December 2003