Accounting for intangible assets in selected Maltese companies : an assessment

Abstract

PURPOSE: The importance of intangible assets is continuously increasing in today's knowledge---based economy, where intangibles drive a large part of business value. Accountants must 'grasp the intangible' in order to account for intangibles in the financial statements. This study seeks to analyse how Maltese companies in different industries, with a focus on listed companies, allocate their resources to investing in intangible assets. The purpose of the study is to discover the importance of intangible assets in Maltese companies. The study investigates the different types of intangible assets, taking into consideration both those capitalised and expensed. DESIGN: After analysing the intangible assets disclosed in the financial statements of selected companies, twelve interviews were conducted with the respective CFOs. Ten companies that capitalise intangible assets and two companies that do not were interviewed. FINDINGS: All the companies that recognise intangible assets stressed their importance, emphasising that intangibles are necessary for their companies to operate. Companies also give importance to intangibles that are expensed, as they affect the company's performance. However, none of them attribute a financial value to these intangibles. Computer software is the most commonly recognised intangible asset. Therefore, the study examines in detail the treatment with regard to: amortisation, impairment, additions and disposals. All companies have a brand, however, if it is internally generated it cannot be recognised. While some companies think that these intangibles should not be recognised, other companies think that if they were able to recognise them it would show a more accurate value of their company. CONCLUSIONS: Accounting for intangibles can be subjective, therefore intangibles are subject to strict recognition criteria. The companies interviewed are careful not to inflate the SOFP with values that are too intangible. However, accountants will recognise intangibles if they are permitted to do so, as this leads to more value being shown in the SOFP. IMPLICATIONS: The developments in accounting standards have shown that the disclosure of the value of intangible assets has increased with time and is likely to continue to increase in the future. However, if a company feels that it is spending money wisely it will continue spending it regardless of whether it will be expensed or capitalised.