INTANGIBLE ASSETS AND DEFERRED COSTS
With the publication last February of Section 3064, “Goodwill and Intangible Assets”, the Accounting Standards Board has considerably narrowed the gap between Canadian practice and IFRS, as well as with U.S. standards.
Until now, Canadian generally accepted accounting principles have allowed a greater number of items to be recognized as assets than under IFRS and U.S. standards. With the publication last February of Section 3064, “Goodwill and Intangible Assets”, the Accounting Standards Board has considerably narrowed the gap between Canadian practice and IFRS, as well as with U.S. standards.
Section 3064 replaces the current Section 3062, “Goodwill and other intangible assets”. The provisions of this new section concerning intangible assets essentially correspond to those of International Financial Reporting Standard IAS 38, Intangible Assets. Goodwill provisions are unchanged from the previous Section 3062.
In parallel with the publication of Section 3064, Section 1000, “Financial Statement Concepts”, and AcG-11, Start-up companieshave been amended, and Section 3450 “Research and Development Costs1 “and CPN-27, Income and expenses during the pre-operating periodhave been withdrawn2. These amendments to the CICA Handbook are significant in that they eliminate the current ambiguities in the Handbook that allow certain costs that do not meet the definition of an asset to be capitalized, often unjustifiably. One of the most interesting changes is to be found in paragraph 1000.51, which now states that application of the concept of matching expenses to income (often invoked in practice) does not allow items that do not meet the definition of an asset to be recognized in the balance sheet.
The new Section 3064 provides much more precise guidance on the recognition of intangible assets, both for separate acquisitions and for internally generated intangible assets, and it clearly states that an intangible asset must satisfy the following four criteria to be recognized:
- the asset must be identifiable;
- the entity must have control over it;
- the asset must be likely to generate future economic benefits;
- its cost must be reliably measurable.
Thus, subject to paragraph 3064.533, the deferral of certain costs as capitalized, deferred or other costs (the names are numerous!) becomes difficult to permit, unless the costs in question meet the capitalization criteria set out in another section of the Manual.
In practical terms, this means that expenses such as set-up costs, pre-opening costs for a new facility or business, pre-operating costs for launching new products or processes, training costs, advertising and promotion costs, and relocation or reorganization costs, are likely to have to be expensed as incurred. Entities that have recognized these items as assets will therefore have to provide for write-offs when Section 3064 comes into force.
Transaction costs associated with obtaining a long-term loan (“deferred financing costs”) are accounted for in accordance with Section 3855, “Financial Instruments – Recognition and Measurement”.
Finally, the new recommendations prohibit the recognition as assets of
intangible assets goodwill, brands, newspaper titles, magazine titles, lists, etc.
and other similar internally-generated items that may not be included in the cost of sales.
of an intangible asset an expenditure initially recognized as an expense.
intangible assets goodwill, brands, newspaper titles, magazine titles, lists, etc.
and other similar internally-generated items that may not be included in the cost of sales.
of an intangible asset an expenditure initially recognized as an expense.
Section 3064 applies to interim and annual financial statements relating to fiscal years beginning on or after January 1, 2011.
As of October 1, 2008, early adoption is encouraged. No-obligation companies
public accountability are entitled to certain differential treatments. Since assets
previously accounted for that no longer comply with the new provisions of the Manual must
likely to be written off retrospectively4, entities should now give special consideration to the
particular attention to these new standards.
As of October 1, 2008, early adoption is encouraged. No-obligation companies
public accountability are entitled to certain differential treatments. Since assets
previously accounted for that no longer comply with the new provisions of the Manual must
likely to be written off retrospectively4, entities should now give special consideration to the
particular attention to these new standards.
1 The main provisions of the former Section 3450 are now included in Section 3064 and
remain essentially unchanged.
2 Section 3450 has been reclassified to the “Superseded Accounting Recommendations” section.
EIC-27 no longer applies to entities adopting Section 3064.
3 Paragraph 3064.53 states that the recognition of an expense as an asset is not ruled out.
prepaid when payment has been made for the supply of goods or services
before delivery of goods or services.
4 Intangible assets recognized prior to the financial year beginning on or after October 1, 2008 that do not meet the criteria for recognition as intangible assets are recognized in the income statement.
do not meet the criteria of Section 3064 must be accounted for in accordance with Section 3064.
1506, “Accounting changes”.
remain essentially unchanged.
2 Section 3450 has been reclassified to the “Superseded Accounting Recommendations” section.
EIC-27 no longer applies to entities adopting Section 3064.
3 Paragraph 3064.53 states that the recognition of an expense as an asset is not ruled out.
prepaid when payment has been made for the supply of goods or services
before delivery of goods or services.
4 Intangible assets recognized prior to the financial year beginning on or after October 1, 2008 that do not meet the criteria for recognition as intangible assets are recognized in the income statement.
do not meet the criteria of Section 3064 must be accounted for in accordance with Section 3064.
1506, “Accounting changes”.
This article appeared in :
http://ocaq.qc.ca/pdf/fra/6_presse/infoca/2008/InfoCA1219_Actifs.pdf
http://ocaq.qc.ca/pdf/fra/6_presse/infoca/2008/InfoCA1219_Actifs.pdf
