Non-recognition of internally generated brands: implications for the usefulness of financial statements

Abstract

International Accounting Standard 38 (IAS38) prohibits the recognition of internally generated brands as assets. This article explores the implications of this prohibition for the usefulness of financial statements, focusing on the implications for note-disclosure. A theoretical doctrinal research approach is taken in which the literature on intangible assets and current accounting standards is examined and evaluated. The article highlights the information content relevant to unrecognised brand assets that is not currently disclosed to users of financial statements. Furthermore, the article argues and explains how this situation may compromise the usefulness of financial statements. Practitioners compiling financial statements may find the conclusions and recommendations useful in improving voluntary note-disclosure when a reporting entity owns significant unrecognised brand assets. The International Accounting Standards Board (IASB) may find the article useful in reviewing IAS38's mandatory note-disclosure requirements in order to improve the usefulness of financial statements.

Internally generated brands: Nestlé’s hidden assets*

“…49 Irrespective of whether registered brands (known as "trademarks" 50 in legal terms) are shown on the financial statements, they have legal identities, like recognized acquired brands and "any other piece of property, plant and equipment", thereby confirming the entity's ability to control them and exclude outsiders from reaping their benefits. 51…”

Policy research in accounting: A doctrinal research perspective

“…(p. 581) Both these articles focus on explaining the effect of IFRSs and create validity for their research through the logic of their theoretical argumentation -even though the methodological grounding differs. Van der Spuy (2015) grounds his work in a doctrinal research perspective, while Baker and McGeachin (2013) focus on a theory-building process approach. The issue is, however, that the literature concludes that accounting does not have its own theory to base accounting research on and to inform practice (Forgarty 2014;Gaffikin 2008;Inanga & Schneider 2005), and therefore the approach of Baker and McGeachin is not always possible in accounting policy research.…”