Intangible asset

Intangible assets may be one possible contributor to the disparity between "company value as per their accounting records", as well as "company value as per their market capitalization". Considering this argument, it is important to understand what an intangible asset truly is in the eyes of an accountant. A number of attempts have been made to define intangible assets: • The Australian Accounting Standards Board included examples of intangible items in its definition of assets in Statement of Accounting Concepts number 4 (SAC 4), issued in 1995. The statement did not provide a formal definition of an intangible asset, but did explain that tangibility was not an essential characteristic of an asset. • The International Accounting Standards Board standard 38 (IAS 38) defines an intangible asset as: "an identifiable non-monetary asset without physical substance". This definition is in addition to the standard definition of an asset which requires a past event that has given rise to a resource that the entity controls and from which future economic benefits are expected to flow. Thus, the extra requirement for an intangible asset under IAS 38 is identifiability. This criterion requires that an intangible asset is separable from the entity or that it arises from a contractual or legal right. • The Financial Accounting Standards Board Accounting Standard Codification 350 (ASC 350) defines an intangible asset as an asset, other than a financial asset, that lacks physical substance. The lack of physical substance would therefore seem to be a defining characteristic of an intangible asset. Both the IASB and FASB definitions specifically preclude monetary assets in their definition of an intangible asset. This is necessary in order to avoid the classification of items such as accounts receivable, derivatives and cash in the bank as an intangible asset. IAS 38 contains examples of intangible assets, including: computer software, copyright and patents. == Financial accounting ==

General standards The International Accounting Standards Board (IASB) offers some guidance (IAS 38) as to how intangible assets should be accounted for in financial statements. In general, legal intangibles that are developed internally are not recognized and legal intangibles that are purchased from third parties are recognized. Wordings are similar to IAS 9. Under US GAAP, intangible assets Expense allocation Intangible assets are typically expensed according to their respective life expectancy. whichever is shorter. Examples of intangible assets with identifiable useful lives are copyrights and patents. Intangible assets with indefinite useful lives are reassessed each year for impairment. If an impairment has occurred, then a loss must be recognized. An impairment loss is determined by subtracting the asset's fair value from the asset's book/carrying value. Trademarks and goodwill are examples of intangible assets with indefinite useful lives. Goodwill has to be tested for impairment rather than amortized. If impaired, goodwill is reduced and loss is recognized in the Income statement. Research and development Research and development (known also as R&D even though most countries treat R&D as current expenses for both legal and tax purposes. Also of note, acquired "In-Process Research and Development" (IPR&D) is considered an asset under US GAAP. IAS 38 requires any project that results in the generation of a resource to the entity be classified into two phases: a research phase, and a development phase. The classification of research and development expenditure can be highly subjective and organizations may have ulterior motives in their classification of research and development expenditures. Taxation For personal income tax purposes, some costs with respect to intangible assets must be capitalized rather than treated as deductible expenses. Treasury regulations in the USA generally require capitalization of costs associated with acquiring, creating, or enhancing intangible assets. For example, an amount paid to obtain a trademark must be capitalized. Certain amounts paid to facilitate these transactions are also capitalized. Some types of intangible assets are categorized based on whether the asset is acquired from another party or created by the taxpayer. The regulations contain many provisions intended to make it easier to determine when capitalization is required. Given the growing importance of intangible assets as a source of economic growth and tax revenue, tax authorities and international organizations have been designing ways to link intangible assets to the place where they were created, hence defining nexus. Intangibles for corporations are amortized over a 15-year period, equivalent to 180 months. Definition of "intangibles" differs from standard accounting, in some US state governments. These governments may refer to stocks and bonds as "intangibles". ==Value of intangible assets==

The most valuable firms, spanning high-tech, pharmaceutical, automotive and financial services industries, derive their competitiveness and market value from intangible rather than physical, that is to say, "tangible" capital. Among companies in the S&P 500, intangibles including intellectual property account for 90% of the total market value. Intangible assets, though not always visible, play a crucial role in shaping the success of companies and countries in today's competitive environment. Investing in these assets helps businesses attract skilled talent, build customer loyalty, achieve market success, foster innovation and growth. These assets also contribute to improved economic opportunities, higher-paying jobs, enhanced product quality. According to WIPO's World IP Report (2017), intellectual property (IP) and other intangibles contribute on average twice as much value as tangible capital to products manufactured and traded along value chains. Recent estimates from Brand Finance used in the Global Innovation Index (GII) suggest that the global value of intangibles has been growing rapidly over the last 25 years to reach around USD 62 trillion in 2023. In China, pledge-backed lending is the earliest type of IP financing developed and the fastest growing one. In 2022, the registered amount of patent and trademark pledged lending in China reached CNY 486.9 billion, up 57.1 percent year-on-year. Twenty-eight thousand projects from 26,000 chinese businesses received loans, both increasing about 65.5 percent year-on-year. == See also ==