Which of the following is not an intangible asset arising from a government grant
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Primary Objective: The aim of this project was to provide users of financial statements with more complete and comparable information about intangible assets used in providing government services. The project expanded upon the reporting requirements for such assets in Statement No. 34, Basic Financial Statements—and Management’s Discussion and Analysis—for State and Local Governments. Show Status: GASB Statement No. 51, Accounting and Financial Reporting for Intangible Assets, was issued on July 10, 2007.
Intangible Assets—Project Plan Project Description: The objective of this project is to provide users of financial statements with more complete and comparable information about intangible assets used in providing government services by expanding on the reporting requirements for intangible assets in Statement No. 34, Basic Financial Statements—and Management’s Discussion and Analysis—for State and Local Governments. In particular, important objectives in expanding the intangible asset requirements would be to clarify the definition of intangible assets and to provide guidance on the appropriate reporting of different types of these assets. This would include considering alternative methods to recognize write-downs (for example, amortization and impairment). The scope of the project would include all governmental intangible assets. Background: The definition of capital assets in paragraph 19 of Statement 34 has sparked many inquiries about intangible assets. Prior to Statement 34, NCGA Statement 1, Governmental Accounting and Financial Reporting Principles, provided guidance on reporting fixed assets. NCGA Statement 1 did not define fixed assets and did not specifically address intangible assets (except for capital leases). However, we are aware that some governments do not report intangible assets. Paragraph 19 of Statement 34 defines capital assets to include all tangible and intangible assets that are used in operations and that have initial useful lives extending beyond a single reporting period. Some have questioned whether that paragraph now requires governments to report all of their intangible assets. Some question whether or not certain acquisition costs or donated items are assets and should be reported, what amount such items should be reported at, and how (or if) they should be written off. Inquiries have been made about easements related to roads (rights-of-way); other easements (such as agricultural, development, and sewer easements); software costs (purchased and internally generated); rights to use assets such as sewer plants, software, buildings, and equipment; land rights including timber, mineral, and water rights; and miscellaneous intangibles such as goodwill, patents, and license agreements. Based upon these inquiries, staff is aware of some inconsistency in practice including capitalization of donated easements, capitalization of software, and approach to estimating the fair value of donated easements. In addition, GASB staff has been asked several questions about applying the amortization provisions of Accounting Principles Board Opinion No. 17, Intangible Assets. Some government practitioners do not believe perpetual rights-of-way for roads, for example, should be written off over a forty-year period because they believe that the rights-of-way are inexhaustible assets under the provisions of paragraph 21 of Statement 34. Based on several discussions with practitioners, staff is aware that current practice for amortizing intangible assets varies. Existing GAAP for State and Local Governments Paragraph 19 of Statement 34 states that capital assets include intangible assets that are used in operations and that have initial useful lives that extend beyond a single reporting period. Further, paragraph 21 of Statement 34 explains that capital assets should be depreciated over their estimated useful lives and those inexhaustible capital assets such as land and land improvements should not be depreciated. The GASB literature contains no other guidance that specifically addresses reporting intangible assets. Although Opinion 17 has recently been superseded by the FASB, most governments continue to follow that guidance on amortizing intangible assets. Paragraph 17 of Statement 34 requires governmental and business-type activities to apply all APB Opinions (as well as FASB Statements and Interpretations issued before November 30, 1989, and Accounting Research Bulletins of the Committee on Accounting Procedure), unless those pronouncements conflict with or contradict GASB pronouncements. Opinion 17, in paragraphs 2 through 29, requires intangible assets to be amortized by systematic charges to income over periods estimated to be benefited (not to exceed forty years). Pronouncements Issued by Other Standards Setters FASB In June 2001, the FASB superseded the long-standing guidance in Opinion 17 with the issuance of FASB Statement No.142, Goodwill and Other Intangible Assets. Under FASB Statement 142, entities are required to write off intangible assets with indefinite useful lives only when they become impaired. Such intangibles must be tested for impairment annually. Intangible assets with finite lives continue to be amortized over their useful lives, but without the Opinion 17 constraint of a maximum of forty years. Intangible assets are defined as "assets (not including financial assets) that lack physical substance." FASB Statement 142 was issued at the same time as FASB Statement No. 141, Business Combinations, which requires all business combinations to be accounted for using the purchase method of accounting, which entails, among other things, recognizing all intangible assets acquired. These assets consist of both separately identifiable intangibles and those that are recognized as a part of goodwill. Paragraph 39 of FASB Statement 141 provides guidance on when intangibles should be reported separately and when they are recognized only as a part of goodwill. "An intangible asset shall be recognized as an asset apart from goodwill if it arises from contractual or other legal rights (regardless of whether those rights are transferable or separable from the acquired entity or from other rights and obligations). If an intangible asset does not arise from contractual or other legal rights, it shall be recognized as an asset apart from goodwill only if it is separable, that is, it is capable of being separated or divided from the acquired entity and sold, transferred, licensed, rented, or exchanged (regardless of whether there is an intent to do so)." For example, an assembled workforce cannot be recognized as an intangible asset outside of goodwill. AICPA The AICPA issued Statement of Position (SOP) 98-1, Accounting for the Cost of Computer Software Developed or Obtained for Internal Use, which addresses accounting for software. SOP 98-1 provides detailed guidance on which costs should be capitalized and which should be expensed. SOP 98-1 also specifies that software should be amortized on a straight-line basis unless another method is more representative of the software's use. However, SOP 98-1 specifically states that it applies only to nongovernmental entities. Other Standards Setters The Public Sector Committee of the International Federation of Accountants has not addressed intangible assets. The International Accounting Standards Board has issued IAS 38, Intangible Assets, which is a comprehensive standard addressing numerous aspects of intangible assets. The Australian Accounting Standards Board has issued AASB 138, Intangible Assets, which incorporates the guidance in IAS 38, along with additional provisions related to non-profit entities. The Canadian Institute of Chartered Accountants has not addressed intangible assets in a comprehensive manner in their Public Sector Handbook, however, guidance is provided in Section 3062 of their for-profit standards entitled, Goodwill and Other Intangible Assets. Constituent Request to Address Issue of Fair Value of Easements In June 2004, the Governmental Accounting and Auditing Committee of the California Society of CPAs formally requested that the Board address the issue of how the fair value of donated easements should be determined, citing concern over the divergence in practice occurring in California. Staff presented this letter, the prospectus for the intangibles project, a paper on determining fair value of easements written for analysis of a question in the Comprehensive Implementation Guide, and an informal survey of practices of reporting easements drawn from AFRs of California cities and counties to the Agenda committee of GASAC for further input. GASAC did not support moving a specific project on easements ahead of the intangible assets project on the technical agenda. Accounting and Reporting Issues
Project History: The intangible assets project was added to the GASB agenda in May 2003. A survey of existing practice on reporting intangible assets was conducted in Fall 2004 through the GASB website. The survey requested information on what types of intangible assets governments have, whether and how they are currently reporting them, how the amount at which they are being reported was determined, whether and how they are being amortized, and information about how significant intangibles are to the overall government. Staff analyzed the results of the 72 responses to the survey and those results affirmed the staff’s perception that there is diversity in practice related to the accounting and financial reporting for intangible assets. Intangible Assets—Minutes for Deliberations Minutes of Meeting, June 19-21, 2007 The Board reviewed a ballot draft of Statement No. 51, Accounting and Financial Reporting for Intangible Assets. Certain minor editorial revisions were tentatively decided on by the Board as part of that review. The Board unanimously approved the issuance of Statement 51, subject to the aforementioned revisions. Minutes of Meeting, May 29, 30, and June 2, 2007 Teleconferences The Board discussed due process comments received from respondents to the Exposure Draft, Accounting and Financial Reporting for Intangible Assets, related to Issue 6—transition provisions. The Board tentatively concluded that the transition provisions provided in the Exposure Draft related to retroactive reporting of intangible assets should be revised for the final Statement as follows:
The Board also tentatively concluded that the amortization provisions of the Statement related to intangible assets with indefinite useful lives should only be retroactively applied for intangible assets considered to have indefinite useful lives as of the effective date of the Statement. The Board also tentatively concluded that the effective date of fiscal periods ending after June 15, 2009, provided in the Exposure Draft should be carried forward to the final Statement. The Board also reviewed a preballot draft of the final Statement on intangible assets, and certain minor editorial revisions were tentatively decided on. The Board decided to move forward with a ballot draft of the final Statement, which was scheduled for discussion at the June meeting. Minutes of Meeting, May 1-3, 2007 The Board discussed due process comments received on Issues 4 and 5 posed in the Exposure Draft, Accounting and Financial Reporting for Intangible Assets, which cover the following: development stage approach for recognizing internally generated computer software and amortization. The Board also discussed due process comments received related to easements. The Board tentatively concluded that the concept of the development stage approach to recognizing outlays associated with internally generated computer software should be carried forward to the final Statement. However, the Board did tentatively conclude that a number of clarifications should be made in the final Statement to assist in the application of the approach. In addition, the Board tentatively concluded that in certain situations, outlays associated with data conversion activities could be capitalized depending on specific facts and circumstances. The Board also tentatively concluded that existing authoritative guidance for capital assets should be applied in determining how to report outlays associated with modifications of computer software. Therefore, outlays related to modifications of software that increase the capacity or efficiency of the software, or extend the useful life of the software, would be capitalized. The Board tentatively concluded that the concept of intangible assets with indefinite useful lives not being amortized should be carried forward to the final Statement. The Board tentatively concluded that the guidance in the Exposure Draft related to determining whether the renewal period of an intangible asset should be considered in its useful life also should be carried forward to the final Statement. Certain clarifications in the final Statement for both of these areas were tentatively agreed to by the Board. The Board tentatively decided to provide additional discussion regarding valuing donated easements in the Basis for Conclusions of the final Statement. This discussion would provide that the fair value of the associated land could be used as a basis to estimate the fair value of a permanent right-of-way easement that leaves little or no use of the land with the landowner that is received by the government through a nonexchange transaction. Minutes of Meeting, April 27, 2007 Teleconference The Board discussed due process comments received on the first three issues posed in the Exposure Draft, Accounting and Financial Reporting for Intangible Assets, which cover the following: the general description of an intangible asset, classification of intangible assets as capital assets, and the specified conditions approach for recognizing internally generated intangible assets. The Board tentatively concluded that additional clarification of the lack of physical substance and nonfinancial nature characteristics should be provided in the Standards section of the final Statement. The Board also tentatively concluded that in the context of the Statement, an asset with a nonfinancial nature is one that is not in monetary form and does not represent a claim or right to assets in monetary form or a prepayment for goods or services. As part of the deliberations on the nonfinancial nature characteristic, the Board addressed treatment of intangible assets held for sale. The Board tentatively concluded that intangible assets that are determined to be held for sale subsequent to acquisition or creation should continue to be subject to the provisions of the Statement; intangible assets considered to be held for sale upon acquisition or creation would fall under the proposed scope exclusion for intangible assets acquired or created primarily to generate income or profit. The Board tentatively concluded that except for the scope exclusion noted above, the underlying concept of classifying intangible assets as capital assets, and applying existing authoritative guidance for capital assets to intangible assets, should be carried forward to the final Statement. The Board tentatively concluded that the concept of the specified conditions approach to recognizing outlays associated with internally generated intangible assets should be carried forward to the final Statement. However, the Board also tentatively concluded that certain clarifications to the criteria used in the approach, and the application of the approach, should be made in the final Statement. Minutes of Meeting, April 3-5, 2007 The Board received testimony from constituents on the proposed Statement, Accounting and Financial Reporting for Intangible Assets. The Board also began reviewing due process comments received from respondents to the Exposure Draft, Accounting and Financial Reporting for Intangible Assets. The Board discussed the classification of intangible assets acquired or created primarily for the purpose of obtaining income or profit. The Board tentatively concluded that these intangible assets should be excluded from the scope of the final Statement and should be considered investments for accounting and financial reporting purposes. The Board also tentatively concluded that an internally generated intangible asset in development should be considered a capital asset in progress and therefore should be reported as an asset. Minutes of Meeting, December 18, 2006 Teleconference The Board reviewed a ballot draft of the proposed Statement, Accounting and Financial Reporting for Intangible Assets, requested minor editorial changes, and approved the issuance of an Exposure Draft. Minutes of Meeting, November 29–December 1, 2006 The Board reviewed a preballot draft of the proposed Statement on intangible assets. As part of its deliberations on the preballot draft, the Board decided to add additional discussion related to the measurement of donated right-of-way easements to the basis for conclusions. The Board tentatively concluded that in the case of right-of-way easements acquired through a nonexchange transaction, it would be inappropriate to arbitrarily assign a nominal value to such an easement without the application of a rational technique to estimate fair value. Other minor editorial revisions of the preballot draft also were tentatively decided on by the Board. The Board decided to move forward with a ballot draft of the proposed Statement, which will be the topic of discussion at the December teleconference. Minutes of Meeting, October 10–12, 2006 The Board discussed accounting for costs related to modifications of computer software that is in place and operational. The Board tentatively concluded that the costs of modifications that result in an increase in capacity or efficiency of the software, or that extend the useful life of the software, should be capitalized similar to the Board’s tentative conclusion for costs incurred subsequent to completion or initial recognition of intangible assets other than computer software. However, the Board also tentatively concluded that generally a modification of computer software would not result in an extension of its useful life unless increased capacity or efficiency was also achieved. The Board also discussed the transition provisions to be provided in the proposed Statement on intangible assets. The Board tentatively concluded that all provisions of the proposed Statement, including those related to recognition and amortization should be applied retroactively. The Board tentatively concluded that if the actual historical cost of intangible assets, or the fair value at the time of acquisition for intangible assets acquired through a nonexchange transaction, is not practical to determine due to inadequate records, governments should report such assets based on estimated historical cost or fair value, as appropriate. However, the Board also tentatively concluded for internally generated intangible assets that, if after making every reasonable effort, the government is unable to determine or estimate the historical cost, the recognition provisions of the proposed Statement would not be applied retroactively. In this case, the government should disclose the nature of the asset not recognized. The Board discussed the effective date to be provided in the proposed Statement on intangible assets, and it was tentatively concluded that the provisions of the proposed Statement should be effective for fiscal years beginning after June 15, 2009. The Board also discussed a draft of the standards section of the proposed Statement on intangible assets. As part of that discussion, the Board reconsidered the criteria for recognition of an intangible asset in the financial statements. The Board determined that inclusion of the criteria items that relate to the probability of providing service capacity and having a value that is reliably measurable may have broader implications beyond the proposed Statement on intangible assets. Therefore, the Board tentatively concluded that identifiably should be the only recognition requirement for intangible assets beyond what currently exists for capital assets. Other minor editorial revisions of the draft standards section also were decided on by the Board. Minutes of Meeting, September 25, 2006 Teleconference The Board discussed the recognition of internally generated computer software as intangible assets. The Board tentatively concluded that the activities involved in developing and installing internally generated computer software should be divided into the following three stages of project development:
The Board tentatively concluded that costs of internally generated computer software should begin to be capitalized only when the activities considered part of the preliminary project stage have been completed and management has implicitly or explicitly authorized and committed to funding, at least currently, the software project. Once the aforementioned conditions have occurred, the costs related to activities in the application development stage should be capitalized, with capitalization ceasing no later than the point that the computer software is substantially complete and ready for its intended use. The Board also tentatively concluded that the costs of activities in the post-implementation/operation stage should be expensed as incurred. The Board considered whether the costs of data conversion should be capitalized as an ancillary charge of making the computer software operational or expensed as incurred as a separate activity. The Board decided that such determination could differ depending on the facts and circumstances involved. As such, the Board tentatively concluded that guidance on data conversion costs should be considered for inclusion in the Comprehensive Implementation Guide. Minutes of Meeting, September 21, 2006 Teleconference The Board discussed accounting and financial reporting for impairment of noncapital intangible assets. As part of that discussion, the Board reconsidered its tentative conclusion to distinguish between capital and noncapital intangible assets. Because of the level of professional judgment that would be involved in determining whether an intangible asset should be considered capital or noncapital, the belief that the existence of noncapital intangible assets would be relatively limited, and concerns regarding the introduction of accounting complexity with this noncapital classification beyond expected cost-benefit considerations, the Board tentatively concluded that all intangible assets should be considered capital assets. The Board also discussed whether guidance on estimating the fair value of donated intangible assets at acquisition should be provided as part of this project. The Board tentatively concluded that such guidance should not be provided in the Statement on intangible assets given the numerous factors that may impact the estimation of the fair value of a donated intangible asset. However, the Board tentatively concluded that guidance outlining the general considerations to be made in estimating the fair value of easements should be considered for inclusion in the Comprehensive Implementation Guide upon issuance of the Statement on intangible assets. Minutes of Meeting, August 29-31, 2006 The Board continued discussions of whether intangible assets considered to have indefinite useful lives should be amortized while their useful life is considered to be indefinite. The Board tentatively concluded that intangible assets considered to have indefinite useful lives should not be amortized unless facts and conditions change resulting in the useful life no longer being indefinite, in which case the asset would begin to be amortized over its remaining estimated useful life. The Board also discussed whether guidance related to the selection of an amortization method for intangible assets beyond what currently exists for capital assets in Statement No. 34, Basic Financial Statements—and Management’s Discussion and Analysis—for State and Local Governments, should be provided in the intangible assets standard. The Board tentatively concluded that the current guidance related to selecting a depreciation/amortization method for capital assets is appropriate for both capital and noncapital intangible assets. The Board discussed treatment of costs related to an intangible asset incurred subsequent to its initial recognition or completion. The Board tentatively concluded that generally such costs should be capitalized (for both capital and noncapital intangible assets) if they extend the useful life of the asset beyond its originally established useful life, or if they increase the capacity or efficiency of the asset. Otherwise, such costs should be considered maintenance costs and expensed as incurred. However, the Board tentatively concluded that an exception to this general rule is that only costs that increase the capacity or efficiency of an intangible asset with an indefinite useful life would be capitalizable, with all other costs being expensed as maintenance costs. The Board also tentatively concluded that if costs incurred subsequent to initial recognition or completion that are of a capitalizable nature are the result of internal development, the criteria for recognition of internally-developed intangible assets (as discussed at previous meetings) should be met to begin capitalization of such costs. The Board also discussed specific application of the aforementioned tentative conclusions to modifications of computer software; however, no tentative conclusions were reached. Such discussion is planned to be resumed during the September teleconference. The Board discussed potential intangible assets that are inherent in the nature of a government or created by statute. The Board tentatively concluded that all such items would be considered powers of a government. The Board tentatively concluded that a power should be defined as the ability to directly compel or control the actions of a third party for the benefit of the government and/or its constituents, which generally results from a constitution, charter, or passage of legislation either by the government itself or by a higher level of government. The Board tentatively concluded that all such powers are future resources, as opposed to current resources and, therefore, do not meet the definition of an asset as provided for in the proposed Concepts Statement, Elements of Financial Statements. The Board discussed whether rights associated with property ownership should be considered separate intangible assets for accounting and financial reporting purposes. The Board tentatively concluded that these property rights, although intangible on an individual basis, if transferred or sold to a third party; together compose the ownership of a tangible asset, the underlying property, which is already recorded at some value in the financial statements. Therefore, the Board tentatively concluded that such property rights should not be recorded as intangible assets separate from the asset representing the underlying property. The Board also discussed required disclosures for intangible assets, and it tentatively concluded that the disclosures currently required for capital assets in paragraphs 115–117 of Statement 34 should incorporate information related to capital intangible assets without separation or distinction beyond what is otherwise required in such paragraphs. The Board also tentatively concluded that accounting policy disclosures similar to those required for capital assets in paragraph 115 of Statement 34 should be required for noncapital intangible assets. Lastly, the Board discussed accounting and financial reporting for impairment of capital intangible assets. The Board tentatively concluded that the provisions of Statement No. 42, Accounting and Financial Reporting for Impairment of Capital Assets and for Insurance Recoveries, would be equally applicable to capital intangible assets. The Board did tentatively conclude that the indicator of impairment in paragraph 9e of Statement 42 should be amended to read "construction and development stoppage" (modification italicized). Additionally, the Board tentatively concluded that a change from an indefinite useful life to a finite useful life meets the change in manner or duration of the use indicator of impairment. Accordingly, in such circumstances, the intangible asset should be tested for impairment, with the amortization of any remaining carrying value over the asset’s new useful life being accounted for prospectively as a change in accounting estimate. Minutes of Meeting, July 11-13, 2006 The Board discussed whether certain types of intangible assets, as tentatively defined during the May/June meeting, should be considered capital assets for financial reporting purposes and, if so, how such classification would be determined. The Board tentatively concluded that guidance for such classification should be provided through a clarification of the definition of capital asset present in paragraph 19 of Statement No. 34, Basic Financial Statements—and Management’s Discussion and Analysis—for State and Local Governments; specifically, the concept of being "used in operations" in the context of intangible assets. The Board tentatively concluded that intangible assets with a primary service capacity used in the direct provision of services to the citizenry or the general public, or to the government itself, should be considered "used in operations" and should therefore be classified as capital assets; intangible assets with a primary service capacity to generate additional resources through income or profit should not be considered capital assets. The Board also tentatively concluded that intangible assets not considered capital assets should be reported in financial statements prepared using the current financial resources measurement focus. Minutes of Meeting, May 31–June 2, 2006 The Board discussed the following aspects of intangible assets: definition, recognition criteria, basis of measurement, and the application of the recognition criteria on the four categories of intangible assets proposed at the April meeting. The Board tentatively concluded that items covered under the intangibles project (hereinafter referred to as "intangible assets") should meet the definition of an asset as proposed in the draft Concepts Statement on elements and should have the following characteristics: lack of physical substance, a nonmonetary or nonfinancial nature, an expectation that the asset will not be sold, and an expected useful life extending beyond a single reporting period. The Board tentatively approved the staff’s proposal for recognition criteria for intangible assets. Staff proposed that an intangible asset be recognized when the asset is considered identifiable, it is probable that the asset will provide service capacity, and the value of the asset can be reliably measured. The Board also tentatively concluded that historical cost should be used as the ongoing basis of measurement for intangible assets. Intangible assets that are acquired through an exchange transaction and intangible assets that are internally generated should be reported based on the cost of their acquisition or development. Intangible assets acquired through a nonexchange transaction and intangible assets created by statute or the inherent nature of a government should be reported at their estimated fair value at the time of their acquisition or creation. The Board tentatively agreed with staff’s proposal that intangible assets acquired through an exchange or nonexchange transaction would generally meet the aforementioned criteria for recognition given the nature of their acquisition. The Board also tentatively agreed that staff should develop criteria to provide guidance for determining when it can be considered probable that an internally generated intangible asset will provide service capacity. The Board agreed to staff’s planned approach to developing overarching criteria for all internally generated intangible assets, with supplementary guidance being provided for specific types of internally generated intangible assets with unique development cycles that are common among governments. The Board requested that staff perform additional research as to whether intangible assets that are created by statute or the inherent nature of a government could meet the criteria for recognition; specifically, whether such assets could be reliably measured. Staff will continue to research the different aspects of these intangible assets and will present its findings at future Board meetings. Minutes of Meeting, April 18-20, 2006 The session began with a discussion of the background on intangible assets, which included the common types of intangible assets possessed by governmental entities. The staff presented the results of a survey of existing practice on reporting intangible assets conducted by the staff in the fall of 2004. The staff noted that the results of the survey indicated that there was diversity in practice as to the accounting and reporting for intangible assets, which indicates the need for guidance in this area. The Board then discussed the proposed objective, approach, and scope for the project. The Board tentatively agreed with the following staff recommendations related to those areas of the project:
Intangible Assets—Major Tentative Decisions to Date Statement No. 51, Accounting and Financial Reporting for Intangible Assets, was issued on July 10, 2007. Which of the following is not an intangible asset?Research and Development Cost, they are internally generated intangible assets. Research Cost are not considered as an intangible asset in the balance sheet anymore.
What are the 4 intangible assets?Goodwill, brand recognition and intellectual property, such as patents, trademarks, and copyrights, are all intangible assets. Intangible assets exist in opposition to tangible assets, which include land, vehicles, equipment, and inventory.
What are the 5 intangible assets?The main types of intangible assets are goodwill, brand equity, Intellectual properties (Trade Secrets, Patents, Trademark and Copyrights), licensing, Customer lists, and R&D. Usually, the values of intangible assets are not recorded in the balance sheet.
What are examples of intangible assets held by governments?Examples of intangible assets may include easements, permits and licenses, water rights, timber rights, mineral rights, patents, copyrights and trademarks. Internally generated software, certain purchased or licensed software, and agency owned websites are also examples.
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