Intangible Assets

1. Recording and Valuation

a. Initial Valuation
- Cost Method
 Firms initially record intangible assets at cost, however only costs
associated with the outright purchase in the acquisition of an intangible
asset.
 Research and development costs incurred during the internal development
or self-creation of an intangible asset are not costs that can be capitalized.
 If a company incurs legal costs to successfully defend an intangible asset,
those costs are capitalized and increase the value of the intangible
- Revaluation Model
 Intangible assets may be carried at a revalued amount (based on fair value)
less any subsequent amortization and impairment losses only if fair value
can be determined by reference to an active market.
b. Amortization
- Only recognized intangible assets with finite useful lives are amortized.
- The amortization period should be reviewed at least annually.
c. Impairment: shall be evaluated annually
- Indicators of Impairment:
 External sources:
a. market interest rates
b. significant adverse changes in the technological
c. market, economic or legal environment in which the entity operates
d. market capitalization being lower than net assets
 Internal sources:
a. internal restructurings
b. evidence of obsolescence or physical damage to the asset

Diagram 1: Determining and accounting for impairment

2. Audit of Intangible Assets
a. Assessment of Risks
- Inherent Risks
 Difficult to ascertain the valuation of the assets
 Accounting standards require different impairment tests for different
classes of intangible assets
- Control Risks (Relevant Factors)
 Expertise and experience of those circulating the fair value of the assets
 Controls over the process to determine fair value, such as segregation of
duties between the entity purchasing the asset and the people assigning the
valuation
 Significant management assumptions in determining the fair value
 Integrity of change controls and security procedures for valuation models
and information systems.
b. Substantive procedures
- Assertion Consideration for the Test of Details
 Existence of the Asset
 Valuation
 Completeness
 Rights and Obligations
 Classification

Sources:
https://accountinginstruction.info/intangible-assets-definition-what-are-intangible-assets/
https://www.iasplus.com/en/standards/ias/ias38
https://www.ey.com/Publication/vwLUAssets/Impairment_accounting_the_basics_of_IAS_36_Impairm
ent_of_Assets/$FILE/Impairment_accounting_IAS_36.pdf
https://courses.lumenlearning.com/boundless-accounting/chapter/introduction-to-intangible-assets/