IAS 38 deals with Intangible asset which is not specifically dealt in another standard. Therefore, IAS 38 is not applied for following intangible assets (ITA):

- Goodwill under IFRS 3 (Business combination)

- Financial instruments under IFRS 9 (Financial instrument)

- Asset in contract with customer under IFRS 15 (Revenue from contract with Customer)

- Asset held for disposal under IFRS 5 (Non-current asset held for sale and Discontinued Operations)

- Employee benefit asset under IAS 19 (Employee benefits)

- Deferred tax assets under IAS 12 (Income Tax)

- Insurance contract under IFRS 4 and 17 (Insurance contracts)

- Development and exploration costs of extractive industry under IFRS 6 (Exploration for and evaluation of mineral resources)

- Lease of intangible asset under IFRS 16 (Leases)

When to recognize Intangible assets in financial statements?

According to [IAS 38.18], an intangible asset is recognized only when it meets both of following conditions:

- Meet definition of an intangible asset

- Meet recognition criteria

1. DEFINITION OF INTANGIBLE ASSET

An intangible asset is:

- An identifiable non-monetary asset without physical substance

- Controlled by the entity as a result of past event; and

- From which future economic benefits are expected to flow to the entity

Identifiable asset

An intangible asset must be identifiable from goodwill. An asset is identifiable if either:

It can be inferred that if an intangible asset arises from contractual or legal rights, it is definitely identifiable from others.

Control ability

An entity controls an asset if the entity has power to obtain future economic benefits flowing from the asset and able to restrict access of others to those benefits.

Normally, control ability is formed from legal rights that are enforceable and protected by law. In absence of legal rights, it is more difficult to demonstrate control over the asset.

Therefore, there are many assets which are controllable and then meet definition of intangible asset only when it is a legal rights which arises from a contract or protected in form of licensing. For example:

- Market and technical knowledge is uncontrollable unless it is protected by law in form of copyrights, patent et cetera;

- Team of skilled staff, specific management or technical talent unlikely to meet definition of intangible asset unless it is protected by legal rights to use it and to obtain future economic benefits from it. In Vietnam, it can be protected in form of Business Secret. However it is not easy to demonstrate a knowledge/know-how is a kind of Business Secret to be protected by Law.

- An entity may have a portfolio of customer, market share, customer relationship, customer loyalty etc. and expected that the entity can benefit from these customers when trading with the entity in future. However, in absence of legal rights to protect, or other ways to control, the entity usually has insufficient control over expected benefits can be generated from those assets/advantages.

Exceptionally, in case of an exchange transaction which is a kind of contractual rights (in substance is legally protected) that can allow the entity to control benefits from the exchanged asset (customer relationship). And according to paragraph 12 above, the exchanged asset is separate from others. Therefore in this case, it meets definition of an intangible asset.

Future economic benefits

Future economic benefits flowing from an intangible asset can come in form of revenue generating or cost saving.

2. RECOGNITION CRITERIA

An entity shall assess probability of future economic benefits flowing in the company by using reasonable and supportable assumptions that represent management’s best estimate of the set of economic condition that will exists over useful life of the asset. In order to assess probability of future economic benefits generated by the asset to flow in the company, the company’s management should use evidence which is available at the date of initial recognition, giving greater weight to external evidence.

An intangible asset is initially measured at Costs.

(To be continued)

References

- IAS 38 – Intangible assets

- Training documents on IAS 38 composed by ACCA Vietnam