Hi, I'd like to know if there any relevant suggestions you can make to reduce/amend the inconsistencies of the AASB138 and Conceptual Framework when reporting Intangible Assets. What changes would you make to improve the reporting process?

Inconsistencies notes

AASB 138 is inconsistent with Conceptual Framework

however, accounting standard takes precedence.

The Conceptual Framework states:

An item that, at a particular point in time, fails to meet the recognition criteria may qualify for recognition at a later date as a result of subsequent circumstances or events

AASB138 identifies an asset under:

• Identifiable = separate and arising from contracts/legal rights
• must be capable of being sold, transferred individually from the entity
• Controlled by the entity
• Future economic benefits expected

Judging by these factors, control over the intangible asset as well as the future economic benefits arising look pretty spot on to me

HOWEVER

1. It is evident that there is a clear conflict between the two for an asset being 'identifiable' as AASB138 goes into more detail than the named factors by containing that an intangible asset needs to be "Identifiable", "Inseparable" as well as "Separable." C.F. = Not required, AASB138 = required ^^
2. Coinciding with 'identifiable' being an issue, Woolworths would lower its number of internally generated assets under AASB138 and in turn their debt to equity ratio would mess up (think a reduction in assets means reduction in expenses). This would lead to an inaccurate measure of increased profit for the entity (and in turn negatively affect the accuracy of reporting for investor/creditors requirements).
3. It has been the case where some intangible assets have been required to be made non-recognised ---> those with an infinite amount of life and internally generated (Woolworths definitely builds on some of these e.g. Brands or trademarks).

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1. The C.F. states that an internally generated intangible will be recognised accordingly as such if the future benefits are expected unlike the AASB which doesn't recognise this whatsoever -----> big difference in financial reporting and values
2. Putting this into perspective, Imagine 2 hypothetical Woolworths/Companies (for the sake of our assignment topic) that are EXACTLY alike and identical. One has bought its brand name while the other has internally made it.
3. AASB 138 would recognise the first Woolworth's brand name at cost while the internally generated Woolworths would not even if their economic benefits were expected
4. The C.F. would imply that the brand name is an asset unlike AASB138
5. As mentioned in Point 1, with the term "separable," in AASB it would be recorded at cost since it can be sold with the company HOWEVER if sold individually/separately, it's value would be lost (coincides with your discussion of various ways an intangible asset can be utilised i.e. internally generated or sold through business combination).
6. The main conflict from this example is whether they should be deemed separable or inseparable