What are assets anyway? Some practical realities

Abstract

Addresses the UK accounting definition of an asset from a practical, theoretical and critical perspective. It suggests that it is a flawed definition in need of change. The accounting definition (UK and US) recognises assets arising from a "transaction or event", a basis which, inter alia, is inadequate for the task of recognising often hugely valuable, internally created assets, such as brands, software and research patents. As providers of financial information to management, the accounting profession has a duty to account for all the tangible and intangible assets of a business. However, as this paper shows, there are many practical circumstances in which it fails in this task.

The brand accounting side‐show

“…However, it is possible that, in practice, the RAMV may be open to a wider interpretation than that envisaged above, creating inconsistencies in disclosure between the policies and practices of companies adopting the standard. This new found leniency is the first real, albeit small, evidence that the accounting profession may be considering some relaxation in what Oldroyd (1994) and Tollington (1998c) regard as an unnecessarily restrictive accounting definition of an asset.…”

“…The current accounting linkage of brand asset recognition to purchased goodwill is broken by Tollington (1998b). Also, if by definition (see Tollington 1998a), brands are assets their existence should not necessarily be dependent upon the existing``asset definition'' requirement (see Tollington, 1998c) for them to be the result of à`t ransaction'' or purchase since, clearly, there are many highly successful, internally created or non-purchased brand assets in existence, such as Coca-Cola and Microsoft. Further, Tollington (1998b) shows that whilst brands can be regarded as assets purchased goodwill is not, by nature, an asset.…”

The cognitive assumptions underpinning the accounting recognition of assets

“…2 According to Tollington (1998a) the element of compulsion that the recognition of assets must result from a transaction or event now appears to be negated in respect of certain internally created intangible assets. This is, clearly, an untidy situation, which needs to be addressed.…”

“…This relates to a specific business circumstance, typically a purchase for goods or services, which nowadays fails to fully reflect the dramatic technological changes in general business circumstance over the past couple of decades. These are circumstances in which assets are intellectually and/or artistically created internally within a business and which are not necessarily the result of a``transaction or event'' (Tollington, 1998a).…”

Accounting recognition of information as an asset

“…The increasing importance of asset recognition has led to considerable debate within the accounting community. Accounting for unrecognizable assets for financial reporting has remained a problematic issue, as evidenced by a considerable breadth of literature [3–8]. A new joint project between the International Accounting Standard Board (IASB) and the Financial Accounting Standard Board (FASB) to revisit the Conceptual Framework (CF) for financial reporting, with a view to completing, updating, refining and converging it into a common improved CF was recently announced [9].…”