AASB 138 “INTANGIBLE ASSETS”
(IN PARTICULAR SOFTWARE)
AASB 138 Intangible Assets is an Australian Equivalent International Financial Reporting Standard (AIFRS) applicable to financial years beginning on or after 1 January 2005.
There is currently no Australian Accounting Standard that comprehensively deals with intangible assets. However there are general requirements contained in a number of standards that are applied to intangible assets. AASB 138 will replace the general requirements in six current Australian standards including AASB 1041 Revaluation of Non-Current Assets, AAS 4 Depreciation, AAS 10 Recoverable Amount of NonCurrent Assets, AAS 21 Acquisitions of Assets, AAS 13 Accounting for Research and Development Costs and AAS 18 Accounting for Goodwill. AASB 138 also covers some of the general principals covered in Statement of Accounting Concepts (SAC) 4. This Policy Summary goes through the main requirements in AASB 138 and also outlines the main differences between the general requirements in the existing AASB and AAS standards regarding intangible assets and the new requirements of AASB 138.
The main impact of this standard on ACT Government agencies is in relation to software, as this is the only material intangible asset that is held by the ACT. As a result, this policy summary emphasises the application of this standard to software.
An intangible asset is defined in AASB 138 as an identifiable non-monetary asset without physical substance. This definition includes software. Software
AASB 138 requires that where software is integral to the related hardware it should be included as property, plant and equipment rather than an intangible asset. For example, the operating system of a computer is integral to the operation of the computer, therefore the computer and operating system should be classified as property, plant and equipment. However application software is not integral to the operation of the computer so should be classified as an intangible asset. Most ACT Government agencies’ software is large application software which should be classified as an intangible asset rather than property, plant and equipment.
ACT AIFRS Policy Summary AASB 138
Under AASB 138, an intangible asset is recognised when it is probable that the expected future economic benefits that are attributable to the asset will flow to the agency and the cost of the asset can be measured reliably.
When an agency purchases software externally this recognition criteria is generally met. However if software is internally generated AASB 138 outlines additional requirements that must be fulfilled in order for internally generated software to be recognised. When assessing whether internally generated software meets the criteria for recognition, an agency is required to classify work performed internally into two phases, the research phase and the development phase.
Examples of activities classified in the research phase are: •
activities aimed at obtaining new knowledge; and
the formulation, design, evaluation and final selection of possible alternatives for new or improved materials, devices, products, processes, systems or services.
Examples of activities classified in the development phase are: •
the design, construction and testing of software; and
the design, construction and testing of a chosen alternative for new or improved materials, devices, products, processes, systems or services.
Costs associated with the research phase cannot be capitalised into the value of internally generated software. Instead the cost is expensed in the year in which it is incurred.
In addition to the general recognition requirements, costs associated with the development phase can only be capitalised into the value of internally generated software when all of the following can be demonstrated by an agency: •