Measuring the value of intangible assets in the local gaming industry : an analysis

Abstract

Purpose: This study aims to take a deeper look into the accounting process for intangible assets (IAs) in the local gaming industry. Apart from analysing the current measurement approaches used in practice, this research also sheds light on the challenges and potential improvements related to this area. Design: The objectives of this research were achieved by conducting a total of 14 semi-structured interviews with professionals who are experienced in dealing with IAs in the iGaming industry. To triangulate different views and opinions, the interviews were held with a mix of gaming company CFOs, advisors and auditors. Findings: The findings show that most common IAs possessed by locally-based iGaming companies include gaming platforms, licences, brands, trademarks, internet domain names and customer relationships. When it comes to measuring these IAs, the cost model tends to understate the actual fair value of the intangible, especially in the case of internally generated IAs. Nevertheless, most interviewees still favour this approach since it provides an efficient and reliable measurement of their IAs. Using the revaluation model is less common, primarily due to the challenges faced when deriving the fair value estimation. The process of capitalising costs related to internally generated IAs and revising the useful life of IAs also impose difficulties related to measurement. Although the research participants acknowledged the shortcomings of the current IAS 38, the majority agreed that the current measurement process should remained unchanged. Conclusions: The findings suggest that in the remote gaming industry, the underlying value of the company’s IAs is their main profit driver. Therefore, improvement in the accounting process for IAs is needed to compensate for the limitations of the cost model and other measurement inconsistencies. The findings conclude that the best way forward would be to substantiate IA values presented on the company’s books with supplementary qualitative disclosures on both recognised and non-recognised IAs. Value: In light of the recent publications by EFRAG (2021) and the FRC (2019), the findings of this study propose a potential solution for standard-setting advisory boards to consider. The analysis of different areas relating to IA measurement offers valuable recommendations for CFOs, advisors and auditors. Similarly, the challenges and potential improvements examined help raise awareness of IA accounting shortcomings amongst external stakeholders.