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IAS 38 Intangible Assets and IAS 37 Provisions, Contingent Liabilities and Contingent Assets both seek to provide users with relevant information by establishing standards for accounting for intangible assets and provisions. IAS 38 defines intangible assets and establishes criteria for their recognition and valuation. Goodwill acquired in a business combination is valued based on comparable market values. IAS 37 defines provisions as uncertain liabilities and establishes conditions for when provisions should be recognized, including when an obligation has arisen from a past event and payment is probable.

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128 views3 pages

FR Essay

IAS 38 Intangible Assets and IAS 37 Provisions, Contingent Liabilities and Contingent Assets both seek to provide users with relevant information by establishing standards for accounting for intangible assets and provisions. IAS 38 defines intangible assets and establishes criteria for their recognition and valuation. Goodwill acquired in a business combination is valued based on comparable market values. IAS 37 defines provisions as uncertain liabilities and establishes conditions for when provisions should be recognized, including when an obligation has arisen from a past event and payment is probable.

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David Yam
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© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
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Utilizing relevant examples where appropriate, analyse how the accounting standards selected seek to provide the users

of financial statements with information which meets the qualitative characteristics set out in the IASB conceptual framework The IASB conceptual framework is a coherent system of inter-related objectives and fundamentals intended for PLCs,, to ensure that they provide financial statements that are relevant, comparable, understandable and of faithful representation. A user of financial statements such as investors will be looking for specific information within annual reports that will aid them in decision-making. The IASB framework is in place to ensure that qualitative characteristics within financial reports such as faithful representation and comparability to help make the companies financial statements as transparent as possible to ensure that corporate entities wont be making false statements about the state of their finances. This report will be analysing 2 standards to see what rules are in place that prevent such things from happening in financial statements. IAS 38 Intangible assets The standard (IAS38) defines intangible assets as an identifiable, non-monetary asset without physical substance (alan melville). For an asset to be recognized as an intangible asset, it must meet the criteria of this definition. For example goodwill would meet this criteria as it doesnt have physical substance, is identifiable and even separable from the company. As they are separable, it means that other companies can acquire these assets. The only problem with putting a value on an asset such as goodwill. Goodwill that has been internally generated will not be valued because its difficult to define the worth . However goodwill acquired from a business combination is valued at the business combination plus the net fair value of the identifiable asset less the liabilities that have been acquired (the comparable market value) (Raymond brockington). For example if you look at the 2010 annual report of GSK, you can see in the notes section(pg 132) the breakdown of goodwill, which shows clearly an increase through business combinations and a loss of 10 million due to impairment losses. Goodwill is not ammortised as it is seen to have a infinite life in comparison to any other intangible. The breakdowns that have been shown in the notes section is useful to the user because. Note- as IAS 38 states, comparable market value is a much better assessment of intangible asset than using historical cost The only problem with intangible assets is the case of trying to define the value of the good. IAS38 states that internally generated intangibles are split into 2 categories research and development.

Valuation of asset? IAS37 Provisions, Contingent liabilities and Contingent assets IAS37 defines a provision as "a liability of uncertain timing or amount" and states that a provision should be recognised when all of the following conditions are satisfied: the entity has a present obligation (legal or constructive) as a result of a past event it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation a reliable estimate can be made of the amount of the obligation.

(Alan Melville)

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