INTHEBLACK March 2025 - Magazine - Page 20
F E AT U R E
“Brand strength is essentially a composition of brand
awareness and reputation. To identify monetary value,
brand strength is combined with the business’s financial size,
in the form of revenue forecasts and the impact of the brand
within the category.”
MARK CROWE, BRAND FINANCE
universally acceptable formula for reliably
measuring them.
On the other hand, a value can be placed
on acquired intangible assets resulting from
a business combination such as a takeover
or merger.
Moves are now afoot to review
whether the current accounting standards
covering the recognition of internally
generated intangible assets, which were
introduced over 20 years ago in 2001,
still stack up. After all, the rules came into
effect six years before the launch of the first
Apple iPhone. The world has moved on a lot
since then.
The IASB announced in April 2024 that
it was commencing a “comprehensive review”
of the accounting requirements for intangible
assets, to assess whether IAS 38 remains
relevant and continues to reflect current
business models.
By all estimates, the review is going to
be a long process that’s unlikely to reach firm
conclusions for many years.
AN INTANGIBLES CHALLENGE
Shaun Steenkamp CPA, a member of
CPA Australia’s Reporting and Assurance
Centre of Excellence, says the current rules
were set at a time when most corporates
didn’t have many intangible assets to worry
about, because they hadn’t developed a lot
of their own technology or software.
Steenkamp says a key challenge for
the IASB in its accounting standards review
will be determining an appropriate valuation
methodology and subsequent accounting
requirements for companies to apply
to intangibles such as brands, to have them
recognised in their financial accounts.
“How do you recognise in the profit
and loss if you say we’ve expanded globally,
brand recognition is now higher, and we
now revalue our brand up by 50 per cent?
Does that mean that your profit and loss
suddenly improves significantly because
you’ve revalued your brand?”
On the other side of the coin, what
happens when a brand suffers significant
reputational issues and it needs to be
devalued? Does a company recognise
the loss in the P&L?
Steenkamp says there are also issues
for companies that grow organically
and have their own set of intangible assets,
like AI.
UNTANGLING INTANGIBLES
Intangible assets are any identifiable non-physical, non-monetary
assets a company holds. International accounting standard
IAS 38 outlines the accounting treatment for intangible assets
by specifying criteria for recognising and measuring them.
It stipulates that separable intangible assets, such as those that have
been acquired, can be listed in company accounts at their cost value
if the conditions set out in IAS 38 are met.
However, internally generated intangible assets such as brands,
mastheads, publishing titles and customer lists are not recognised
as intangible assets because it is often difficult to distinguish from
the cost of maintaining or enhancing the entity’s business as a whole.
20 INTHEBLACK March 2025
