Intangible assets are valuable resources for companies, although they are not always visible or tangible like machinery or equipment. Instead, they encompass non-physical elements such as trademarks, patents, software, know-how, and more. When these assets are developed internally by companies, they fall under the category of “internally generated intangible assets.” In this article, we will explore the guidelines established by the International Financial Reporting Standards (IFRS) and the Comitê de Pronunciamentos Contábeis (CPC) for the accounting treatment of these assets and their relevance in the business landscape.
Definition of Internally Generated Intangible Assets:
Internally generated intangible assets are those that a company develops on its own, without acquiring them from third parties. For example, when a company creates proprietary software, develops an innovative production process, or registers a new trademark, these assets are considered internally generated intangible assets. It is essential to note that intangible assets must meet two fundamental criteria to be recognized in the accounts: identifiability and control.
Recognition and Measurement:
According to IFRS and CPC standards, the recognition of internally generated intangible assets occurs when certain criteria are met. The company must demonstrate that the asset is likely to generate future economic benefits and that the costs associated with the development can be reliably measured. If these criteria are met, the asset is recognized in the balance sheet at the cost incurred to develop it.
Useful Life and Amortization:
Just like tangible assets have a finite useful life, intangible assets also have an estimated period of economic benefits. The company must assess the asset’s useful life and adopt an appropriate amortization policy to allocate the cost over time. If there is no reliable evidence of a defined useful life, the asset should be considered to have an indefinite useful life and will not be amortized but rather assessed annually for potential impairment.
Annually, or when there are indications of impairment, intangible assets with indefinite useful lives must undergo impairment tests. These tests aim to verify whether the asset’s carrying amount is recoverable, meaning whether the expected future benefits are still viable. If a significant impairment loss is identified, the company must adjust the asset’s carrying amount, recognizing the impairment loss in the income statement for the period.
Internally generated intangible assets are an essential part of the assets of many companies as they reflect the value of internally developed knowledge and innovations. The accounting treatment of these assets, following the IFRS and CPC standards, aims to provide reliable and transparent information about their value and relevance to the company. It is crucial for companies to understand the guidelines and apply best accounting practices to ensure efficient management and accurate presentation of financial statements.