Financial Accounting Australia Report 2022

Running head: FINANCIAL ACCOUNTING
Financial Accounting
Name of the Student
Name of the University
Author’s Note

FINANCIAL ACCOUNTING1
Executive Summary
The key intention behind the introduction of AASB 138
Intangible Assets or IAS
38
Intangible Assets is to suggest the firms with the appropriate accounting
rules, principles and regulations for accounting for intangible assets comprise of
“internally-generated intangible assets” and “acquired intangible assets”. There
are different accounting processes and procedures for these two types of
intangible assets; and these create the difference between the accounting for
these intangible assets. Business organizations become majorly benefitted from
not pressing the changes for more recognition of “internally-generated intangible
assets” and these are the main reason for their reluctance to press for changes
in “AASB 138/IAS 38”.

FINANCIAL ACCOUNTING2
Table of Contents
Introduction........................................................................................................... 3
Impact for AASB 138/IAS 38 for “Internally-Generated Intangible Assets”............3
Differences in the Accounting for “Internally-Generated and Acquired Intangible
Assets”.................................................................................................................. 4
Why Companies May Be Reluctant to Press...........................................................6
Conclusion............................................................................................................. 7
References............................................................................................................. 8

FINANCIAL ACCOUNTING3
Introduction
There has been certain major issues related to the accounting treatments
of the intangible assets of the companies, especially for the intangible assets
that are generated internally; these assets are called internally-generated
intangible assets (Su and Wells, 2015). The main issues can be observed in the
accounting processes of “internally-generated intangible assets” that includes
the recognition and measurement of them. The requirement for the corporations
is to follow two different accounting processes in order to account for “internally-
generated intangible assets” and “acquired intangible assets” because one is
generated within the corporation and other is acquired while acquiring other
businesses. In order to reduce this wrong accounting practice for “intangible
assets”, AASB 138
Intangible Assets or IAS 38
Intangible Assets has been
introduced which contains the principles for accounting for “intangible assets”
(Su and Wells, 2015). This report assesses what kind of impact AASB 138/IAS 38
has created on the accounting for “internally-generated intangible assets”. In
this process, it shows the crucial differences between the accounting for
“internally-generated intangible assets” and “acquired intangible assets”. Lastly,
this discusses about the reasons for the reluctance of the companies to press.
Impact for AASB 138/IAS 38 for “Internally-Generated Intangible
Assets”
Australia did not have any similar standard to AASB 138/IAS 38 before
Australian International Financial Reporting Standards (AIFRS). The main
application of “AASB 138/IAS 38” is seen to the assets that are recognized as
non-monetary as well as identifiable when it does not have any physical element
and certain examples of these kinds of assets are trademarks, brand names and
others (Russell, 2017). It is noteworthy to mention that “AASB 138/IAS 38” has
created key impact on “internally-generated intangible assets” related
accounting because of the fact that this only recognizes the intangible assets
that the firms have bought at cost and does not recognize the “internally-
generated intangible assets”. The expectation in this case is goodwill and this
can be recognized by the companies when acquiring in business combination by
complying with the principles of AASB 3
Business Combination. Fundamentally, it
implies that there has been key changes in the way “internally-generated
intangible assets” are recognized, measures and treated with the inception of
“AASB 138/IAS 38” (Rossouw, 2013).
“AASB 138/IAS 38” set forth the criteria in order to undertake the
recognition and measurement of intangible assets and makes the companies
accountable for correct disclosure of these assets. An intangible asset refers to a
non-monetary identifiable asset having no physical substance. This type of asset
is identifiable when they can be shown separately or they arise from legal rights
or contractual agreements. This implies that “internally-generated intangible
assets” are not the outcome of any contractual agreement or legal right and this
means they cannot be recognized by the firms. This particular aspect creates a
major impact on the accounting for “internally-generated intangible assets” and
“acquired intangible assets”. It is not easy to undertake distinguishing the cost
to generate an intangible asset from the cost to maintain or improve the
operations of the companies or goodwill (Boennen and Glaum, 2014). Because of
this, “AASB 138/IAS 38” does not provide the permission to recognize the assets
such as internally generated brands, publishing titles, mastheads, customer lists
and other assets as intangible assets. The cost to generate other “internally-
generated intangible assets” are categorized into whether they raise in the
research phase or development phase. It is needed to recognize research