International GAAP® 2019: Generally Accepted Accounting Practice under International Financial Reporting Standards
Page 252
781
Charge for the year
–
– – 6
114
120
Disposals
–
– – – (5)
(5)
Exchange movements
–
– – (3)
(16)
(19)
December 31, 2017
249
–
–
101
527
877
Net book values
December 31, 2017
347
451
253
1,418
549
3,018
December 31, 2016
349
451
253
1,458
526
3,037
1
The net book value includes non-EU based landing rights of €106 million (2016: €113 million) that have a definite life.
The remaining life of these landing rights is 18 years.
2
Other intangible assets consist primarily of software with a net book value of €473 million (2016: €474 million), and
also include purchased emissions allowances.
3
The impairment charge of €14 million in 2016 relates to landing rights associated with British Airways’ Openskies
operation, €11 million of which related to landing rights in the EU that have an indefinite life.
In addition to the disclosures required above, any impairment of intangible assets is to
be disclosed in accordance with IAS 36, which is discussed in Chapter 20 at 13,
[IAS 38.120], while the nature and amount of any change in useful life, amortisation
method or residual value estimates should be disclosed in accordance with the
provisions of IAS 8. [IAS 38.121].
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There are a number of additional disclosure requirements, some of which only apply in
certain circumstances:
(a) for an intangible asset assessed as having an indefinite useful life, the carrying
amount of that asset and the reasons supporting the assessment of an
indefinite useful life. In giving these reasons, the entity should describe the
factor(s) that played a significant role in determining that the asset has an
indefinite useful life;
(b) a description, the carrying amount and remaining amortisation period of any
individual intangible asset that is material to the entity’s financial statements;
(c) for intangible assets acquired by way of a government grant and initially recognised
at fair value (see 4.6 above):
(i) the fair value initially recognised for these assets;
(ii) their carrying amount; and
(iii) whether they are measured after recognition under the cost model or the
revaluation model.
(d) the existence and carrying amounts of intangible assets whose title is restricted and
the carrying amounts of intangible assets pledged as security for liabilities;
(e) the amount of contractual commitments for the acquisition of intangible assets.
[IAS 38.122].
In describing the factors (as required under (a) above) that played a significant role in
determining that the useful life of an intangible asset is indefinite, an entity considers
the list of factors in IAS 38.90 (see 9.1.1 above). [IAS 38.123].
Finally, an entity is encouraged, but not required, to disclose the following information:
(a) a description of any fully amortised intangible asset that is still in use; and
(b) a brief description of significant intangible assets controlled by the entity but not
recognised as assets because they did not meet the recognition criteria in this
Standard or because they were acquired or generated before the version of IAS 38
issued in 1998 was effective. [IAS 38.128].
10.2 Statement of financial position presentation
IAS 1 – Presentation of Financial Statements – uses the term ‘non-current’ to include
tangible, intangible and financial assets of a long-term nature, although it does not
prohibit the use of alternative descriptions as long as the meaning is clear. [IAS 1.67].
Although most intangible assets are non-current, an intangible asset may meet the
definition of a current asset (i.e. it has an economic life of less than 12 months) when it
is acquired and should be classified accordingly.
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assets
1275
IAS 1 requires intangible assets to be shown as a separate category of asset on the face of the
statement of financial position. [IAS 1.54]. Intangible assets will, therefore, normally appear as
a separate category of asset in the statement of financial position at a suitable point within
non-current assets, or at a point in an undifferentiated statement of financial position that
reflects their relative liquidity, [IAS 1.60], that is, the time over which they are to be amortised
or sold. An entity that holds a wide variety of different intangible assets may need to present
these in separate line items on the face of the statement of financial position if such
presentation is relevant to an understanding of the entity’s financial position. [IAS 1.55].
While the figure for intangible assets may include goodwill, the relevant standards
require more detailed disclosures of the constituent elements to be included in the notes
to the financial statements. In many cases though, entities will be able to aggregate the
intangible assets into slightly broader categories in order to reduce the number of lines
items on the face of their statement of financial position.
Nestlé is an example of an entity that chooses to present goodwill separately from other
intangible assets on the face of the statement of financial position.
Extract 17.11: Nestlé S.A. (2017)
Consolidated balance sheet as at 31 December 2017 [extract]
In millions of CHF
Notes 2017 2016
Assets [extract]
Non-current assets
Property, plant and equipment
8
27 775
27 554
Goodwill
9
29 748
33 007
Intangible assets
9
20 615
20 397
Investments in associates and joint ventures
14
11 628
10 709
Financial assets
12
6 003
5 719
Employee benefits assets
10
392
310
Current income tax assets
62
114
Deferred tax assets
13
1 967
2 049
Total non-current assets
98 190
99 859
10.3 Profit or loss presentation
No specific guidance is provided within IAS 1, and only limited guidance is available
within IAS 38, on the presentation of amortisation, impairment, and gains or losses
related to intangible assets in the statement of profit or loss.
• Gains on the sale of intangible assets should not be presented within revenue. [IAS 38.113].
• An entity should disclose the line item(s) of the statement of comprehensive
income in which any amortisation of intangible assets is included. [IAS 38.118(d)].
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In the absence of detailed guidance on how to present such items in the statement of
profit or loss, it will, in practice, usually be appropriate to present them in a similar way
as those related to property, plant and equipment.
10.4 Additional disclosures when the revaluation model is applied
IAS 38 requires an entity, which accounts for intangible assets at revalued amounts, to
disclose the following additional information:
(a) by class of intangible assets:
(i) the effective date of the revaluation;
(ii) the carrying amount of revalued intangible assets; and
(iii) the carrying amount that would have been recognised had the revalued class
of intangible assets been measured after recognition using the cost model; and
(b) the amount of the revaluation surplus that relates to intangible assets at the
beginning and end of the period, indicating the changes during the period and any
restrictions on the distribution of the balance to shareholders. [IAS 38.124].
Classes of revalued assets can be aggregated for disclosure purposes. However, an entity
cannot combine classes of intangible asset measured under the revaluation model with
other classes measured at cost. [IAS 38.125]. Where assets are carried at fair value, an entity
will also have to comply with the disclosure requirements of IFRS 13, as appropriate.
These requirements are discussed in Chapter 14.
10.5 Disclosure of research and development expenditure
An entity should disclose the aggregate total amount of research or development
expenditure (see 6.2 above) that is recognised in profit or loss as an expense during the
period. [IAS 38.126-127].
11
SPECIFIC ISSUES REGARDING INTANGIBLE ASSETS
11.1 Rate-regulated
activities
In many countries the provision of utilities (e.g. water, natural gas or electricity) to
consumers is regulated by the national government. Regulations differ between
countries but often regulators operate a cost-plus system under which a utility is allowed
to make a fixed return on investment. A regulator may allow a utility to recoup its
investment by increasing the prices over a defined period. Consequently, the future
price that a utility is allowed to charge its customers may be influenced by past cost
levels and investment levels.
Under a number of national GAAPs accounting practices have developed whereby an entity
accounts for the effects of regulation by recognising a ‘regulatory’ asset or liability that
reflects the increase or decrease in future prices approved by the regulator. Such ‘regulatory
assets’ may have been classified as intangible assets under those national GAAPs.
This issue has been a matter of significant interest for entities in those countries
adopting IFRS, because the recognition of these regulatory assets and liabilities is
prohibited under IFRS. Just as the requirement to charge a lower price for the delivery
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assets
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of goods and services in the future does not meet the definition of a past obligating
event, or a liability, in IAS 37 – Provisions, Contingent Liabilities and Contingent Assets
(see Chapter 27), the ability to charge higher prices for goods services to be rendered in
the future does not meet the definition of an intangible asset in IAS 38. In particular, the
right obtained from the regulator to set higher prices is not accompanied by a legal
requirement for a customer to buy those goods and services in future, meaning that the
entity cannot demonstrate sufficient control over the related benefits to meet the
definition of an intangible asset.
IFRS 14 – Regulatory Deferral Accounts – permits certain assets and liabilities to be
recognised under very limited circumstances and to ease the adoption of IFRS for rate-
regulated entities. It allows rate-regulated entities to continue recognising regulatory
deferral accounts in connection with their first-time adoption of IFRS, e.g. Canadian
utility entities. First-time adopters do not need to make major changes in accounting
policy for regulatory deferral accounts on transition to IFRS until a comprehensive IASB
project is completed, but existing IFRS preparers are prohibited from adopting the
standard. Entities that adopt IFRS 14 must present the regulatory deferral accounts as
separate line items on the statement of financial position and present movements in
these account balances as separate line items in the statement of profit or loss and other
comprehensive income. The standard requires disclosures on the nature of, and risks
associated with, the entity’s rate regulation and the effects of that rate regulation on its
financial statements. The further application of IFRS 14 is discussed in Chapter 5.
The IASB is continuing its comprehensive rate-regulated activities project, which could
result in a standard on rate regulation or a decision not to develop specific requirements.
In September 2014 the IASB issued a Discussion Paper – Reporting the Financial Effects
of Rate Regulation. Based on a defined type of rate regulation, the Discussion Paper
considers four possible approaches to reporting the financial effects of rate regulation:
• recognising the package of rights and obligations as an intangible asset (i.e. a licence);
• adopting the regulatory accounting requirements as an exemption to the general
requirements of IFRS;
• developing specific IFRS requirements for rate regulation; or
• prohibiting the recognition of regulatory deferral account balances.4
At the time of writing, the IASB had not indicated which approach, if any, it prefers. The
Board continues to discuss aspects of the model before it will decide whether to publish
an Exposure Draft or Discussion Paper.5 For further discussion of the IASB’s rate-
regulated activities project see Chapter 28 at 12.4.
11.2 Emissions
trading
schemes
Governments around the world have introduced or are in the process of developing
schemes to encourage corporations and individuals to reduce emissions of pollutants.
These schemes comprise tradable emissions allowances or permits, an example of
which is a ‘cap and trade’ model whereby participants are allocated emission rights or
allowances equal to a cap (i.e. a maximum level of allowable emissions, usually less than
the entity’s current quantity) and are permitted to trade those allowances.
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While there are variants to these arrangements, a cap and trade emission rights scheme
typically has the following features:
• an entity participating in the scheme (participant) sets a target to reduce its
emissions to a specified level (the cap). The participant is issued allowances equal
in number to its cap by a government or government agency. Allowances may be
issued free of charge, or participants may have to pay the government for them
(see below);
• the scheme operates for defined compliance periods;
• participants are free to buy and sell allowances at any time;
• if at the end of the compliance period a participant’s actual emissions exceed its
emission rights, the participant will have to buy additional rights in the market or
>
it will incur a penalty;
• in some schemes emission rights surpluses and deficits may be carried forward to
future periods; and
• the scheme may provide for brokers – who are not themselves participants – to
buy and sell emission rights.
The EU Emissions Trading Scheme, still by far the biggest international scheme for
trading greenhouse gas emission allowances, now allocates many allowances by auction,
not free allocation.6
A number of attempts have been made by the Interpretations Committee and the IASB
to formulate guidance on how these schemes might be accounted for, but without
reaching a definitive conclusion. IFRIC 3 – Emission Rights – was issued in 2004
(see 11.2.1 below). However, the interpretation met with significant resistance and was
withdrawn in 2005, despite the IASB considering it to be an appropriate interpretation
of existing IFRSs.7
Until the IASB completes a new project on emissions trading schemes, an entity has the
option either:
(a) to apply IFRIC 3, which despite having been withdrawn, is considered to be an
appropriate interpretation of existing IFRS; or
(b) to develop its own accounting policy for cap and trade schemes based on the
hierarchy of authoritative guidance in IAS 8.
In April 2016, the IASB provided an update on its Pollutant Pricing Mechanisms
(formerly referred to as Emissions Trading Schemes) Project in which it noted the
diversity in how Pollutant Pricing Mechanisms (which include emissions trading
schemes) are accounted for and that some of the issues identified related to possible
gaps and inconsistencies in IFRSs.8 No further work is planned by the IASB until 2019
or early 2020.9
11.2.1
Emissions trading schemes – IFRIC 3
IFRIC 3 dealt with accounting for cap and trade schemes by entities that participated in
them.10 The provisions of the interpretation were also considered to be relevant to
other schemes designed to encourage reduced levels of emissions and share some of
the features outlined above.11
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assets
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IFRIC 3 took the view that a cap and trade scheme did not give rise to a net asset or
liability, but that it gave rise to various items that were to be accounted for separately:12