Accounting Treatment of Intangible Assets

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Topics: Balance sheet
Accounting Treatment of Intangible Asset

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Pace University
ACC692 Summer I By Yigal Rechtman July 30, 2001
Introduction
What is the problem? Accounting for intangibles has gained prominence in the past few decades due to changes in the way the business world operates. The technological revolution and in particular, the information age, has brought intangible resources to the fore of the business environment. Businesses ( even the most traditional production manufacturers ( are moving towards an information age where a competitive edge is increasingly linked to resources other than the fixed and liquid assets as understood by Generally Accepted Accounting Principles (GAAP). Some research has shown that accounting for Intangible Assets (IA) - a general term that will be defined and separated later - will fulfill the accuracy requirement of the accounting functions and reports. Other research has shown that accuracy will have to be traded off with relevance of the accounting functions and reports. Still other research claims that neither accuracy nor relevance are served by accounting for resources that do not meet the current definitions of Assets under GAAP. Accordingly, there are two questions regarding the accounting for IA: 1. Should the Generally Accepted Accounting Principles recognize as financially relevant and accurate events that arise from IA? 2. How should GAAP account, process and present these IA related events (if the answer to question number 1 is positive.) Question number one is answered in the positive: the existence of IA in the current business environment is proven in repeated investigations. Further, the economic effects of IA on corporations has shown that not disclosing or accounting for such resources amounts to miscomunications regarding the activity and financial state of a business. The research that was used in this paper has shown that Intangible



References:   [x][x]. Berry, John; MIT, Wharton Search for IT Asset Metric; Internetweek; Manhasset; Feb 5, 2001. [xi][xi]. (...Brand assets and patents are knowledge assets, not just technology(. Companies May Be Unwittingly Ignoring The Bulk of Their Asset Value; Investor Relation Business; New York; Dec. 13, 1999; p. 4. [xvi][xvi]. Alfred M. King, Jay M. Henry; Valuing intangible assets through appraisals; Strategic Finance; Vol. 81, No. 5, Montvale; Nov. 1999. pp. 32-37. [xvii][xvii]. Alfred M. King, Jay M. Henry, Strategic Finance, Nov. 1999. [xxvi][xxvi]. Joseph A. Patrick et al; Global Leadership Skill and Reputantional Capital: Intangible Resources for Sustainable Competitive Advantage; The Academy of Management Executive Vol.13, No. 1; Feb. 1999; pp. 58-69. [xxvii][xxvii]. Michael D. Michalisin et al; In Search of Strategic Assets; International Journal of Organizational Analysis, Vol. 5, No. 4; Oct. 1997; pp. 360-387.

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