The cognitive assumptions underpinning the accounting recognition of assets

Abstract

This paper presents an examination of the cognitive assumptions underpinning the accounting recognition of assets, in particular, internally created intangible assets such as brands, software and patents. The purpose is to examine, in broad terms, how accountants view these assets and, also, to assess whether accountants, themselves, are aware of the restrictive nature of their disclosure practices. It is supported by a small questionnaire of accountants to see whether there is some support for this assertion. Intangible assets are becoming paramount in the governance of companies and it is, therefore, pertinent for management to have relevant financial information about them. An important first step is to persuade accountants to recognise them.

Perceptions of Intellectual Capital: Irish Evidence

“…Although financial statements have never purported to fully represent organisational market values (Tollington, 2000), there is no doubt that based upon the increasing prominence of intellectual resources as the primary source of corporate wealth, their usefulness to investors is diminishing at an accelerating pace (Wallman, 1998). If efforts are not made to incorporate the value of intangibles such as internal structures, external structures and employee competencies into a formalised reporting framework then there exists a significant risk that management reporting and financial statements will become irrelevant (Guthrie, 2000).…”

Adoption of FRS 138 and Audit Delay in Malaysia

“…The complexity of IFRS adoption is mainly attributable to certain standards that have received considerable criticism from the preparers and the auditors due to their ambiguous measurement and recognition. For instance, accounting debates on the definition, measurement and recognition (Tollington, 2008;Gallego and Rodriguez, 2005;Grasenik and Low, 2004) of intangible assets are a never-ending story and the accounting treatment for intangible assets are labelled as "one of the most controversial and intractable issues in accounting" (Lhaopadchan, 2010 p.123). Although it has been discussed in the literature for over a century, there is no consensus on the true meaning of intangible assets and how they should be accounted and reported.…”

“…Although it has been discussed in the literature for over a century, there is no consensus on the true meaning of intangible assets and how they should be accounted and reported. Even with the availability of IFRS 138 on Intangible Assets, conflicting opinions linger, especially concerning the complexity of recognition (Tollington, 2008).…”

Discounted Cash Flow and Its Implication on Intangible Valuation

“…Brands, advertising, R&D and human resources are such important intangible assets which can create value for an entity, but their intangibility makes it difficult for valuing them for the firm. The reluctance of the accountants to recognize these intangible assets are due to the lack of transaction or event that ignores their economic worth (Tollington 2000). However, the capitalization of purchased brands invariably uses DCF approach conversely taking into account that the amount of goodwill is not infringed (Tollington 2000).…”

“…The reluctance of the accountants to recognize these intangible assets are due to the lack of transaction or event that ignores their economic worth (Tollington 2000). However, the capitalization of purchased brands invariably uses DCF approach conversely taking into account that the amount of goodwill is not infringed (Tollington 2000). Many Internet-based companies have used DCF approach for their valuation.…”