Question

Quote: “the tools many countries use to measure intangible assets are behind the times, so they’re getting an incomplete picture of the economy.”(emphasis added, Bill Gates, 16/08/2018)

Required: Discuss how the accounting standard AASB138 Intangibles resolves or does not resolve the issue identified in the quote.

I need your help to identify the relevant issue within the quote, also identify paragraphs in AASB 138 that are relevant to the issue above. And an example to make relevant points. Thank you so much.

Answer 1

To understand the quote "the tools many countries use to measure intangible assets are behind the times, so they’re getting an incomplete picture of the economy", we will need to initially understand the following -

Meaning of Intangible Assets -

It is an asset that cannot be touched. Examples include brand, trademark, rights, etc.

Recognition Criteria for Intangible Assets as per AASB 138 -

1) Identifiability - The asset needs to be separately identifiable from the organization and have a contract.

2) Non Monetary - The asset cannot be valued precisely since it is not purchased from anywhere.

3) Lacking Physical Substance - It cannot be a tangible item.

4) Control - Control means the power to prevent a third party reaping benefits from our asset.

5) Sale - Capable of being sold and receive a price for it.

Analysis of quote given by Bill Gates and the Recognition Criteria of Intangible Assets as per AASB 138 -

The recognition criteria above is a very useful criteria for the manufacturing industries and the pre-technology boom era. With the pace of technology growing at a rapid pace, the criteria does not fulfill the objectives.

Examples to illustrate Bill Gate's point -

Uber's most valuable asset is its network of drivers. But, we cannot consider it as an Intangible Asset because Uber lacks control over its drivers. The drivers may drive for another similar entity at the same time.

In the technology arena, Intangible assets provide far greater value when they are connected to other intangible assets and functioning together than alone. For example, an IPhone is merely a phone if not for the Apple's Licensing Agreements, Codes, Protocols, etc. The value derived from each of the intangibles mentioned added together is less as compared to when they are bought in together and create a synergy effect.

Conclusion -

AASB 138's recognition criteria of Intangible Assets does not entirely take into account the actual value and benefits derived from the technological resources. Either they are not considered as an asset at all like in the case of Uber's network of drivers or the synergy effect is ignored as in the case of IPhone.