Question

Accounting for intangible assets. Discuss relevance versus reliability as they apply to reporting on the intangible assets of the firm.

Please also include references

Answer 1

The relevance of intangibles has been has been an anytime argument. Many studies have shown intangibles like goodwill to be a sort of value relevant. (Francis and Schipper, 1999; Lev and Zarowin, 1999; 5 Goodwin and Ahmed 2006). They all together pinpointed that, there has been an integrated alliance between the intrinsic strength of the firm and its value of intangibles.

Lev and Sougiannis (1996) too explored the value relevance of an intangible like Research and Development by appraising several numbers in the books. However, their detections stipulated that the Research and Development yields value-relevant information for a certain segment of investors only.

Goodwill, as earlier said is yet a domain which went into enough researchers handbook and calculations. Most of them found that only purchased goodwill is value relevant (McCarthy and Schneider, 1995, Barth and Clinch, 1998, Jennings et al, 1996). Jifri and Citron back in (2009) probed the value relevance of this goodwill accounting and found that investors do value recognised and disclosure goodwill identically.

Synchronising the accounting for intangible assets is indeed the most brainstorming area faced by accounting standard-setters world-wide (Lev, 2003) . The issue is particularly important because of frequent mergers and acquisitions taking place, as well as the speedy progress of foreign financial markets (HoeghKrohn and Knivsfla, 2000).

If relevant particulars about intangibles are allowed to be communicated, it could not brush-up the reliability of financial information reported by the firms. The alarm about the value of its intangibles need to be correctly decoded and grasped by all entities and users otherwise these alarms become as clamour and they decrease the very objective of a such relevance and reliability concept.