Question

1. What are the three major types of intangible asset, and how does the accounting for them differ?
(250 words)
Part B (Review)
1. Would the worldwide adoption of IFRS result in worldwide comparability of financial statements?
Why or why not

Answer 1

Q.1.

The three types of intangible assets are:

(1) Purchased

(2) Acquired in a business combination

(3) Internally generated.

(1) And (2) are classified as having a finite or indefinite useful life; (3) can only be classified as finite-lived. Finite-lived intangibles are amortized on a systematic basis over their useful lives. All intangibles are subject to impairment testing. Indefinite-lived intangibles must be tested for impairment at least annually.

Q.2.

There are several factors that might inhibit worldwide comparability of financial statements even if IFRS are required in every country. First, even though the Comparability Project of the 1990s reduced the number of alternative methods allowed, several IFRS continue to allow companies to choose between a benchmark and an allowed alternative treatment. If the benchmark is adopted by one company and the allowed alternative by another company, strict comparability will not exist. (It should be noted that this is also true within a country if domestic GAAP allows choice among alternatives, for example, in depreciation and inventory valuation methods.) Second, even if the same treatments are selected, cross-national comparability could be harmed if accountants apply the principles-based IFRS differently. Differences in cultural values across countries could cause accountants to have biases, for example, with respect to conservatism that could influence their judgment in applying IFRS.