IFRS leaves companies grasping at intangibles

UK companies are a battling to come to grips with international accounting standards that will require them to disclose and quantify a plethora of intangible assets for the first time.

Link: How much does IFRS really matter?

Under IFRS3, companies will no longer have to amortise goodwill, but they will be obligated to reflect the specific values of intangible assets that, until now, were lopped together under goodwill.

Companies will now be faced with the challenging task of valuing elusive entities such as customer relationships, patents and trademarks individually.

‘Identifying and valuing intangibles is new to the UK and Europe, and financial directors and financial controllers are confused about their treatment,’ said Sarpel Ustunel, a senior manager at valuation firm American Appraisal.

Ken Wild, technical partner at Deloitte, said some intangibles would be more difficult to value than others.

‘The valuing of intangible assets that have cash patterns, like licences, will be easier to value, but other items are going to be awfully difficult to quantify,’ he said.

Valuing intangibles is common practice in the United States, so FTSE100 firms will be able to draw on the international experience of the Big Four accounting firms. Smaller companies without the same resources, however, are set to be the hardest hit by the change.

‘There is a strong need for a pragmatic solution for small and medium cap companies who can’t afford the same expertise as bigger companies,’ said Ustunel.