Abstract

Abstract Intangible property viz., patent, copyright, producers, goodwill, trademark and
highbrow property and license have private importance in company entity to advantage
organisation reason. The purpose of intangible assets is to determine whether or now not or
now not such property represent a few advantage or privilege within the business organisation
as they're least liquid (B.B.Mansuri,2016). These property are recorded on the concept of
steady with usually correct accounting thoughts. Hence, intangible assets ought to be sincerely
worth price and need to seem in the balance Sheet at rate lots less any quantity written off from
year to year to the earnings and loss account. Against this ancient beyond, the modern have a
have a have a look at intends to find out growing issues in accounting for intangible property
(B.B.Mansuri,2016).

Introduction

Bookkeeping and revealing of unclear property had been the bother of dissension for
unmistakable reasons and are perhaps the most over the top quarrelsome weights of judicious
talk for in as much as 3 over one years It is unlikely that this debate will cease since the fair
value accounting practices are endorsed both by the Financial Accounting Standard Board
(FASB) and International Accounting Standard Board (IASB). The issue of SFAS No. 157
‘Fair Value Measurements’, though working in ‘bilateral convergence’ with the IASB, is aimed
at improvising and converging the fair value accounting by plugging the loopholes present in
the current standards (A.Cao, 2010). The growing volume of international operations and
mergers and acquisitions by multinational firms necessitates greater harmonization of financial
accounting standards (S.L, 2008).

Body/main evaluation

The controllers who take a look at the credible value bookkeeping hones for the most
segment have an affinity to push off the obvious fee bookkeeping hones in the outside of its
product. Nevertheless, increasing controversies have been shaping up ever since it was debated
that ‘reliability’ can be a ‘scapegoat’, in the relative case for the accounting fraternity to
increase ‘value relevance’. The debate is concurrent with the increasing recognition of
intangible assets and their reporting in the financial statements by companies, especially
applicable to the software technology firms. The practice and endorsement of fair value
accounting brings up another contentious issue, that the representation of intangible assets in
the financial statements would close the gap between the market values and the book values
(M.sen, 2004). On the contrary, (H.J,2007) asserted that intangible assets are not likely to
eliminate the gap between the book and market value for two factors—the fair value of
identifiable but non-recognizable category and the other is non- identifiable factor that
becomes a component of goodwill.

The reporting of intangible assets is ‘forward looking’, while ironically the sacrificial
pursuit by managers for reporting these estimates can be subject to manipulation and biases
and maybe very difficult to validate. This is further aggravated by the use of ‘Mark-to-market’
and ‘Mark-to-model’ accounting with the complexity, unreliability and scarcity of market
value information (S and L, 1998). It invariably becomes a challenge for the standard setter
sand regulators to amend the statement in the light of corporate needs and on other corporate
governance concerns by involving different stakeholders. These multiple interpretations have
intensified the debate on reliability and credibility. The paper is organized as follows: First, it
discusses the background of the fair value hierarchy, followed by a comparison of fair value
accounting and historical cost approach. Subsequently, it explains the different perspectives of
the inclusion of intangible assets in the balance sheet statement, and the challenges involved in
the balance sheet approach. Finally, it concludes by summing up the discussions.

The Statement of Financial Accounting Standards (SFAS) is directed at the relevance

and reliability of information for decision making, with the objective of making accounting
information useful. “To be relevant, information must be timely and it must have predictive
value or feedback value or both. To be reliable, information must have representational
faithfulness and it must be verifiable and neutral. Comparability, which includes consistency,
is a secondary quality that interacts with relevance and reliability to contribute to the usefulness
of information…” (FASB, 1980).

The notion for the primary is Fair Value Accounting Versus Historical Cost Approach.
In traditional accounting practices, the Historical Cost Approach (HCA) endorses the income
statement approach of financial accounting. In the past few decades there has been a transition
toward the Fair Value Accounting (FVA) which endorses the balance sheet approach of
financial reporting. With the FASB rolling out two statements—the SFAS No. 141 (Business
Combination) and 142 (Goodwill and Other Intangible Assets)—the board is finally pursuing
a transition from the ‘value-in-use’ to ‘value in-exchange’. The former (HCA) uses accounting
for income statement, while the latter (FVA) uses the fair value accounting initiated balance
sheet approach of accounting.

The momentous setters focus on FVA holding the view that assets and liabilities should
reflect the ‘current economic condition’ in order to provide more relevant and useful
information to different prospective stakeholders. The statements reflecting ‘future
expectations’ relinquish the matching principle altogether (Barth.M.F, 2008). Hence, the new
paradigm of accounting needs to focus on returns unlike the traditional HCA.

Regardless, the second conviction is inclusion of intangible assets in the balance sheet.
The balance sheet approach adopted by the standard setters was the “concept of assets,
especially with the recent proliferation of intangible assets” (Dichev.D.L, 2010), but persisted
with the income statement approach as a ‘natural foundation’ for financial reporting
(Dichev.D.L, 2010) argued that the incorporation of assets and liabilities accounted in the
balance sheet is usually ‘residual’. It becomes imperative to choose between balance sheet
accounting and income statement in order to provide ‘conceptual clarity’ and ‘internal
consistency’. Thereby (Dichev.D.L, 2010) and (Benston et al,2006) endorsed the income
approach because of ‘matching of expenses to revenue’ and ‘revenue recognition’, which are
two integral principles. The accounting fraternity is therefore in doubt as to whether the
‘earning’ principle (the balance sheet approach) or the ‘matching’ principle (the income
approach) is to be chosen. This doubt plagues regulators and academicians as well.

Conclusion

The affordable regard (fair value) accounting of intangible assets can be contrary to the
statement guidelines and can, in turn, reduce the reliability of financial reporting by providing
inadequate disclosures. The consolidation of the balance sheet for more relevant information
has become a scapegoat of omitting the reliability of information. More studies should be
pursued to analyze the recognition and relevance of current values of intangible assets with the
intent of determining their utility span in contrast to the selling of these assets as brands
(Krumwhiede_T, 2009). It is clear that the conservative standard setters and regulators have
resisted booking intangibles in the balance sheet, in principle due to accounting conservatism
differences on the ‘speculative’ valuation of indistinct resources.
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