Acta Oeconomica Pragensia 2004, 12(1):122-139 | DOI: 10.18267/j.aop.252

The criteria that can be applied to the breakdown of equity components constituting the estate of the company - intangible and tangible assets in accordance with U.S. GAAP and IAS / IFRS

Markéta Novotná

Ing. Markéta Novotná je interní doktorandkou na Katedře finančního účetnictví Fakulty financí a účetnictví Vysoké školy ekonomické v Praze.

The paper focuses on financial reporting of long-lived assets. The author's aim was to analyze the approach of two major accounting principles - IAS/IFRS and US GAAP.
Both of the principles address following issues:
* initial recognition and measurement,
* depreciation: allocation of capitalized costs over the useful life of the asset
* disposal of the asset.
Broadly accepted classification of the long-lived assets divides the whole group into two parts: tangibles and intangibles.
General definitions and recognition criteria are covered by the framework. Particular standards dial then with special matters.
Although both international approaches have a lot in common, several differences emerge:
* US GAAP do not allow to capitalize internally developed intangibles,however developed intangibles can be capitalized under special conditions according to IAS/IFRS;
* impairment: IAS/IFRS allow to cancel or adjust the impairment towards the original value of the asset, US GAAP - once impairment is recognized, it is not permitted to cancel it and to return back to the original value of the asset
* IS /IFRS use historical costs based treatment and allowed alternative treatment - revaluation, US GAAP don't use allowed alternative treatment of the assets - revaluation is not permitted;
* IAS/IFRS set the useful life of the intangibles up to 20 years, US GAAP don't restrict the useful life at all.
In the process of convergence of IAS/FRS and US GAAP questions have arisen which of the approaches should be taken as a crucial one for world accounting principles. Standard-setters prepare studies to support their current approach. Unified solution has not been found yet.

Keywords: long-term assets, tangible assets, intangible assets, valuation, useful life, depreciation, depletion, amortization, future economic benefit, impairment

JEL classification: M41

Published: March 1, 2004  Show citation