Financial Accounting Theory Standards Board

Question: Discuss about the Financial Accounting Theory Standards Board. Answer: Introduction: Intangible assets are very important part of the asset structure of any company. It can be defined as the identifiable non-monetary assets that cannot be seen, touched or physically measured. An intangible asset can be created or acquired. There is attributed value to any intangible asset (Deegan 2013). These assets provide useful support for a company to continue its business effectively. Goodwill, patents, licenses, RD, copyrights and much more are examples of intangible assets. Australian Accounting Standards Board (AASB) defined intangible asset reporting standard in the 138 part of the reporting standard. This assignment discusses the compliance of AASB 138 in the annual report of two Australian giant companies Woolworth and Telstra. Woolworth is a supermarket and Telstra is a telecommunication company. The intangible asset report analysis of Woolworth is in the first part and the analysis of Telstras intangible asset report is in the second. The analysis is done according to AASB. Review of Woolworths and Telstras Financial Report on Intangible Assets: Woolworths 2016 Annual Report Analysis: Woolworths 2016 annual report on intangible assets consists of goodwill, brand names, liquor and gaming licenses and others. They classified their intangible assets in four groups: goodwill, brand names, liquor and gaming licenses and others. Their intangible assets identification conforms to Australian Accounting Standards Boards (AASB) number 138 standard regarding disclosure of intangible assets in the financial report (Yao and Hu 2013). The assets mentioned in the report as intangible assets in the financial report are identifiable, have some value, lacking in physical substance, non-monetary, controllable and carry future financial benefits. These assets are not intangible assets in the scope of other standard, financial assets as per AASB 132 (Steenkamp and Steenkamp 2016), exploration or evaluation assets as per AASB or expenditure on development and extraction of oil, minerals and related sources. Every intangible asset has got a useful life. Fair value is allocated to them. These assets can be sold, separated, transferred, rented or exchanged individually or with another asset. Many of these assets arise from legal or contractual rights. The costs of these assets are calculated accurately. There are no internally generated intangible assets in the report in the intangible asset section. The Cost Model and Revaluation Model are used for valuation of the assets. The intangible assets with finite useful lives are properly amortized and those with indefinite useful lives are tested for impairment (Russell 2015) in compliance of AASB 136. The report discloses the following information about the companys intangible assets. Finite or infinite useful lives of the intangible assets. Used amortization method for an intangible asset with finite useful life. Gross carrying amount and accumulated amortization at start and end of the period. Carrying amount reconciliation at start and end of the period. Reasons for considering an intangible asset to have an indefinite useful life. Detailed financial report on the Cash Generating Unit groups. Woolworths intangible asset section is quite detailed and conveys much information about the company assets. Being a large company, their goodwill, different brand names, various licenses are of immense value. The report shows that the cost of their intangible assets is around $6000 million (www.woolworths.com 2016). Telstras 2016 Annual Report Analysis: Telstra is Australia largest telecommunication company. Their 2016 annual report contains the following intangible assets: goodwill, licenses, software assets, deferred expenditure and other intangibles. Telstras annual report is the perfect example of an AASB 138 compliant report. This report covered all the aspects of the companys intangible assets. The entire asset related and the valuation-related information is given to help the user of this information to understand (Rindova and Martins 2012). The report lists all intangible assets of the company excluding the intangible assets which will be applicable in another standard, financial assets as per AASB 132, evaluation and exploration assets as per AASB 6 and mineral, oil and related resources extraction and development expenditures. The intangible assets definitions include asset, active market, cost, fair value and useful life. The assets are easily identifiable, without physical existence and non-monetary in nature. The assets are going to give benefits in future and their cost can be reliably measured. The internally generated intangible assets are not included. The Cost Model and Revaluation Model are used for valuation of the assets. The intangible assets with finite useful lives are amortized and the ones with infinite useful lives are tested for impairment in accordance to AASB 136. The annual report discloses the following information about Telstras intangible assets: Gross carrying amount and accumulated amortization at start and end of the period. Reconciliation of carrying amount at start and end of the period. Methods of amortization used for intangible assets with finite lives. The statement of income that includes expenses for amortization. Reasons for considering an asset having an indefinite useful life. Related information about the intangible assets. Assessment of impairment. Details of Cash Generating Units and its goodwill allocation Calculation of Value in Use. Telstras annual report on intangible assets contains all the required components as specified in AASB 138 (www.aasb.gov.au 2016). It conforms to that perfectly. All the required information can be easily found in this report. Their total annual intangible asset in 2016 is around $10000 million (www.telstra.com 2016)! Comparison of Woolworth and Telstras Intangible Asset Report: The 2016 Annual Report of Woolworth and Telstra are both compliant with AASBs 138 standards. However, there are some differences in the presentation and disclosure. Woolworths report is brief; it covers only the essential aspects of disclosure of intangible assets. There are not many details about the various intangible assets in details. Many statistical and numerical data is also missing which might be a key piece of the report. So, at a glance, Woolworths report on intangible assets is adequate but not highly detailed. On the other hand, Telstras report is highly detailed in the intangible assets section. It gives all the numerical and statistical information of the various intangible assets. The user will get a good look at the money flow of various assets. There is also a detailed description of the intangible assets and their measurement methods to help the user in reading the information properly. The amortizations and impairments are shown in the proper manner for the reader to understand (Arrighetti and Lasagni 2015). So, in comparison with Woolworth, Telstras report is much more informative and detailed. Conclusion: An intangible asset is an important part of any companys asset structure. It improves balance sheet health of the companies. So the companies need to give a detailed report about their intangible assets in their report. The measurements also need to be shown to give a detailed numerical view. AASB 138 is the standard for intangible asset reporting in Australia. The Australian companies Woolworth and Telstra has successfully incorporated their intangible asset report in the annual report of 2016 in compliance with AASB 138. Telstra has adopted a more detail based approach to creating the report. Woolworths report is adequate. References: Arrighetti, A., Landini, F. and Lasagni, A., 2015. Intangible Asset Dynamics and Firm Behaviour.Industry and Innovation,22(5), pp.402-422. Deegan, C., 2013.Financial accounting theory. McGraw-Hill Education Australia. Rindova, V.P. and Martins, L.L., 2012. Show me the money: A multidimensional perspective on reputation as an intangible asset.The Oxford handbook of corporate reputation, pp.16-33. Russell, M., 2015. Management incentives to recognise intangible assets.Accounting Finance. Steenkamp, N. and Steenkamp, S., 2016. AASB138: Catalyst for managerial decisions reducing R D spending?.Journal of Financial Reporting and Accounting,14(1). www.aasb.gov.au [Accessed on 20th Sep. 2016] www.telstra.com.au [Accessed on 20th Sep. 2016] www.woolworths.com.au [Accessed on 20th Sep. 2016]