Background to the UKEB research project

The increasing importance of intangible assets to the modern economy is ubiquitously acknowledged, as demonstrated by the numerous academic papers and books written on this topic. As noted by CPA Ontario “Today, intangible assets are recognized as the key source of innovation and growth, an economic golden goose”.

At the same time there is significant discussion about the shortfalls of IFRS Standards in relation to accounting for intangible assets. Steve Cooper , an independent analyst, co-author of The Footnotes Analyst blog, and former IASB Board Member, has stated that, “the current inconsistent and limited recognition of intangible assets causes analytical challenges for investors… We think that investors would greatly benefit from improvements to both the narrative reporting and financial statement data regarding intangibles.”

1. These concerns have been echoed in surveys of users. For example:
   • In 2019 the FRC published a consultation “Business Reporting of Intangibles: Realistic Proposals”. They noted when reporting the feedback received from UK investors that they “were unanimous in their support for improving the quality of reporting on intangibles” 
   • Research currently being funded by ICAS has noted that 93% of users surveyed thought that “financial reporting is lacking adequate information on intangible assets”, though they also note that this view was only shared by 61% of preparers surveyed.
   • A worldwide survey of 170 senior investment decision makers commissioned by Columbia Threadneedle Investments concluded that, “There is agreement that analysis of intangibles provides a competitive advantage to investors, and recognition that intangible research is increasingly important in analytical work. However, while investors find information about intangibles readily available, they believe that it is often unreliable, incomplete or inaccurate.”

The IASB has acknowledged these concerns about intangible assets. In one of his first public statements the new chair of the IASB, Dr Andreas Barckow, stated that “the rise of self-generated intellectual property and its non-addressal in the accounts” was one of the biggest challenges and opportunities facing the IASB.

Staff papers presented to the IASB summarising the feedback it received on its Third Agenda Consultation indicated that most respondents rated intangible assets as a high priority area.  Respondents believed any review should:

• modernise IAS 38 Intangible Assets, to better reflect the ever-increasing importance of intangible assets in today’s business models, particularly for unrecognised internally generated assets;
• address new types of intangible assets, which were not envisaged when IAS 38 was developed (such as cryptocurrencies and emission rights) to ensure it results in useful information to users of financial statements; and
• improve comparability between companies that grow organically and those that grow through acquisitions.

Based on that feedback we expect intangible assets to form a key part of the IASB’s agenda for the next five-year period. A pro-active thought leadership project on intangible assets will enable the UKEB to fulfil its responsibility to proactively participate in the development of high-quality accounting standards by leading the UK debate on accounting and reporting of intangible assets as well as contributing to and actively participating in the international debate on a timely basis.