Reporting on intangibles : an analysis

Abstract

Purpose: Investments in intangible assets are becoming increasingly popular as the world shifts towards a knowledge economy. IAS 38 addressing intangibles, has however, not been updated for over a decade. Multiple papers namely EFRAG (2021) discuss the dissatisfaction on the standard, whilst others such as Zammit (2022) show an element of satisfaction. This study aims to examine local practitioners’ perspectives on the standard together with possible ways of improvement as presented by EFRAG (2021). Design: A qualitative research approach was adopted with 16 semi-structured interviews conducted with 13 auditors and 3 IFRS specialists together with a documentary analysis of comment letters issued on EFRAG’s (2021) discussion paper. Findings: The findings suggest that while most auditors interviewed are satisfied with IAS 38, they acknowledge its shortfalls and the risk of managerial manipulation if certain excluded intangibles were to be recognised. Nevertheless, some of the auditors interviewed and most specialists show an element of dissatisfaction claiming that current reporting creates an information gap between management and stakeholders, rendering financial statements to lose their relevance. Conditional recognition of intangibles has been favoured as the best way forward together with giving preparers the option to choose the method of measurement. Conclusion: This research suggests that while the accounting profession recognises the limitations of reporting under IAS 38, it is concerned about the possibility of managerial manipulation if certain explicitly excluded IAs were to be recognized and measured in the financial statements. Value: This study provides the local professionals’ general perception on IAs as well as an in-depth analysis of possible ways of improving the standard. It is expected that standard setters locally will benefit from the conclusions and recommendations put forward by this study. This research could be used by the Accountancy Board and the Malta Institute of Accountants in the development of future revisions to GAPSME in overcoming the current shortfalls of IAS 38.