IDEAS home Printed from https://ideas.repec.org/a/bla/ausact/v33y2023i1p5-13.html
   My bibliography  Save this article

Accounting for Intangible Assets: Thinking It Through

Author

Listed:
  • Stephen Penman

Abstract

With the modern corporation investing more in intangible assets, the issue of appropriate accounting for these assets is very much at the fore and formally on the agendas of accounting standards boards. Some commentators advocate that internally generated intangible assets should be booked to the balance sheet, just like tangible assets. This paper explains that this apparently straightforward solution is not so simple. There are subtleties that, when recognised, indicate that such accounting would often make both balance sheets and income statements less informative. In response, the paper outlines an accounting for intangible assets that preserves, indeed enhances, the information conveyed by both the balance sheet and the income statement and satisfies the financial reporting objective of providing information to investors about ‘the amount, timing, and uncertainty of future cash flows’.

Suggested Citation

  • Stephen Penman, 2023. "Accounting for Intangible Assets: Thinking It Through," Australian Accounting Review, CPA Australia, vol. 33(1), pages 5-13, March.
    • Handle: RePEc:bla:ausact:v:33:y:2023:i:1:p:5-13
    DOI: 10.1111/auar.12394
    as

    Download full text from publisher

    File URL: https://doi.org/10.1111/auar.12394
    Download Restriction: no
    File URL: https://libkey.io/10.1111/auar.12394?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Stephen H. Penman & Xiao-Jun Zhang, 2021. "Connecting book rate of return to risk and return: the information conveyed by conservative accounting," Review of Accounting Studies, Springer, vol. 26(1), pages 391-423, March.
    2. Peters, Ryan H. & Taylor, Lucian A., 2017. "Intangible capital and the investment-q relation," Journal of Financial Economics, Elsevier, vol. 123(2), pages 251-272.
    3. Penman, Stephen & Zhang, Xiao-Jun, 2020. "A theoretical analysis connecting conservative accounting to the cost of capital," Journal of Accounting and Economics, Elsevier, vol. 69(1).
    4. Luminita Enache & Anup Srivastava, 2018. "Should Intangible Investments Be Reported Separately or Commingled with Operating Expenses? New Evidence," Management Science, INFORMS, vol. 64(7), pages 3446-3468, July.
    5. Stephen H. Penman, 2009. "Accounting for Intangible Assets: There is Also an Income Statement," Abacus, Accounting Foundation, University of Sydney, vol. 45(3), pages 358-371, September.
    6. Lev, Baruch & Sougiannis, Theodore, 1996. "The capitalization, amortization, and value-relevance of R&D," Journal of Accounting and Economics, Elsevier, vol. 21(1), pages 107-138, February.
    7. Baruch Lev, 2018. "The deteriorating usefulness of financial report information and how to reverse it," Accounting and Business Research, Taylor & Francis Journals, vol. 48(5), pages 465-493, July.
    8. Richard Barker & Stephen Penman & Thomas J. Linsmeier & Stephen Cooper, 2020. "Moving the Conceptual Framework Forward: Accounting for Uncertainty," Contemporary Accounting Research, John Wiley & Sons, vol. 37(1), pages 322-357, March.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Yaowen Shan & Sue Wright, 2023. "Editorial," Australian Accounting Review, CPA Australia, vol. 33(1), pages 3-4, March.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Dinh, Tami & Schultze, Wolfgang, 2022. "Accounting for R&D on the income statement? Evidence on non-discretionary vs. discretionary R&D capitalization under IFRS in Germany," Journal of International Accounting, Auditing and Taxation, Elsevier, vol. 46(C).
    2. Kannan, Yezen & Khallaf, Ashraf & Gleason, Kimberly & Bostan, Ibrahim, 2023. "The relationship between R&D intensity, conservatism, and management earnings forecast issuance," Advances in accounting, Elsevier, vol. 62(C).
    3. Penman, Stephen & Zhu, Julie, 2022. "An accounting-based asset pricing model and a fundamental factor," Journal of Accounting and Economics, Elsevier, vol. 73(2).
    4. Kim, Robert & Kim, Sangwan, 2021. "Does revenue-expense matching play a differential role in analysts’ earnings and revenue forecasts?," The British Accounting Review, Elsevier, vol. 53(5).
    5. Yu, Lin & Liu, Xiaoquan & Fung, Hung-Gay & Leung, Wai Kin, 2020. "Size and value effects in high-tech industries: The role of R&D investment," The North American Journal of Economics and Finance, Elsevier, vol. 51(C).
    6. Jeremiah Green & Henock Louis & Jalal Sani, 2022. "Intangible Investments, Scaling, and the Trend in the Accrual–Cash Flow Association," Journal of Accounting Research, Wiley Blackwell, vol. 60(4), pages 1551-1582, September.
    7. Anup Srivastava, 2019. "Improving the measures of real earnings management," Review of Accounting Studies, Springer, vol. 24(4), pages 1277-1316, December.
    8. Ham, Charles G. & Kaplan, Zachary R. & Leary, Mark T., 2020. "Do dividends convey information about future earnings?," Journal of Financial Economics, Elsevier, vol. 136(2), pages 547-570.
    9. Stephen H. Penman & Xiao-Jun Zhang, 2021. "Connecting book rate of return to risk and return: the information conveyed by conservative accounting," Review of Accounting Studies, Springer, vol. 26(1), pages 391-423, March.
    10. Brasel, Kelsey R. & Hill, Mary S. & Taylor, Gary K., 2022. "The relevance of GAAP vs. non-GAAP net assets to creditors: An examination of the credit default swap market," Advances in accounting, Elsevier, vol. 56(C).
    11. Ewens, Michael & Peters, Ryan & Wang, Sean, 2019. "Measuring Intangible Capital with Market Prices," SocArXiv kvp2f, Center for Open Science.
    12. Kristof Van Criekingen & Carter Bloch & Carita Eklund, 2022. "Measuring intangible assets—A review of the state of the art," Journal of Economic Surveys, Wiley Blackwell, vol. 36(5), pages 1539-1558, December.
    13. Anup Srivastava, 2023. "Trivialization of the bottom line and losing relevance of losses," Review of Accounting Studies, Springer, vol. 28(3), pages 1190-1208, September.
    14. Tatiana Garanina & Henri Hussinki & Johannes Dumay, 2021. "Accounting for intangibles and intellectual capital: a literature review from 2000 to 2020," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 61(4), pages 5111-5140, December.
    15. Omar Alsinglawi & Mohammad Aladwan, 2018. "The Effect of Invisible Intangibles on Volatility of Stock Prices," Modern Applied Science, Canadian Center of Science and Education, vol. 12(11), pages 290-290, November.
    16. Feng Gu & Baruch Lev & Chenqi Zhu, 2023. "All losses are not alike: Real versus accounting-driven reported losses," Review of Accounting Studies, Springer, vol. 28(3), pages 1141-1189, September.
    17. Narayan, Paresh Kumar & Narayan, Seema & Tran, Vuong Thao, 2023. "Patent-related intellectual property and corporate investment," Finance Research Letters, Elsevier, vol. 52(C).
    18. Lim, Steve C. & Macias, Antonio J. & Moeller, Thomas, 2020. "Intangible assets and capital structure," Journal of Banking & Finance, Elsevier, vol. 118(C).
    19. Shawn Ho & Baljit K. Sidhu & Fan Yang, 2023. "The response of Australian firms to AASB 138 disallowing the recognition of internally generated identifiable intangibles," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 63(3), pages 3609-3641, September.
    20. Hasan, Mostafa Monzur & Lobo, Gerald J. & Qiu, Buhui, 2021. "Organizational capital, corporate tax avoidance, and firm value," Journal of Corporate Finance, Elsevier, vol. 70(C).

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bla:ausact:v:33:y:2023:i:1:p:5-13. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: http://www.blackwellpublishing.com/journal.asp?ref=1035-6908 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.