Essay on the comparison of IFRS and U.S GAAP in relation to intangible assets.

1. Introduction

Businesses have never been as globalised as they are today. Numerous corporations from developed, newly industrialised and developing countries operate on a global basis and need to create financial statements using the accounting practices of their home country, as well as those existing in their areas of operations. The divergence in accounting practices of different countries creates the need for the preparation of separate financial and accounting statements and subsequent reconciliation of differences. The international accounting fraternity is now steadily moving towards global commonality in accounting practices and procedural reporting. The International Accounting Standards Board (IASB) has been working towards convergence of global accounting standards. Its mission is to develop and enforce a single set of global accounting standards, based on preparation of high quality, transparent and comparable financial statements for local and global users.

The IASB has been working on compiling a stable set of International Financial Reporting Standards (IFRS) for first time users. The IFRS was mandated for all publicly listed companies in the European Union in 2005 and has also been adopted by other countries like Australia. The IASB has also been working very closely with the US Financial Accounting Standards Board (FASB), since 2002, to bring about convergence between US GAAP and the IFRS. However, while significant work has been done on harmonising IFRS with US GAAP and many pending issues are being currently addressed, a number of accounting topics are still treated differently by these two systems.

A number of differences continue to remain in the accounting treatment of intangible assets. Intangibles have been defined in various ways. Essentially they comprise of assets that do not have physical presence and are represented by items like goodwill, brands and patents. These assets do not have shape but do have values; which again are sometimes …

Tags: GAAP, IFRS, intangible assets

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