Intangible Assets Essay

2912 words - 12 pages

Accounting today provides detailed information for a large scope of stakeholders that vary from investors to managers to creditors. These stakeholders rely heavily on the accounting information provided by certified public accountants and verification by auditors. With so much emphasis on the information provided by accountants, why is it that assets with no physical substance have such a large influence on the results of the financial statements? The valuation of intangible assets, such as goodwill, patents and trademarks, can play a large role in improving the results of a corporation, and further making the corporation more attractive to investors and more secure to creditors. There are many decisions regarding intangible assets, such as recognition, measurement and amortization. Many of these decisions are subjective and the results may vary from one individual to the next. This subjectivity leaves room for the manipulation of intangible assets to achieve the desired outcome. Many questions arise in the debate of how to account for intangible assets. Should one amortize the asset over a period no longer than twenty years? Or should intangible assets be reevaluated on a yearly basis? Should intangible assets be capitalized if they are created within? These are some of the many questions that arise with the discussion of intangible assets; all of which can have a drastically different outcome on the financial statements. There is also a great deal of debate over the valuation of intangible assets in financial statements. With no "right answer," the debating never ends and makes intangible assets one of the more controversial subjects in financial statements. There is no way to completely eliminate the controversy surrounding intangible assets; however, there are steps that should be taken to limit the controversy surrounding the recording of intangible assets. There should be some structure of uniformity within the accounting profession to limit the manipulation of the values of intangible assets.With the increased scrutiny in accounting today, the valuation of accounting numbers is very crucial. This is especially true with the estimation involved in valuing subjective amounts such as intangible assets. Accountants and the ethical practices they employ have been under constant monitoring ever since the recent scandals involving Enron and WorldCom. Accountants must use conservatism in valuing the amounts of intangible assets placed in the financial statements. The use of conservatism, however, could result in understating the value of a company. This is just one of the many judgments involved in assessing intangible assets. Accountants must also determine whether or not the asset in question in fact qualifies as an "intangible asset." The accountant must determine what the value of the asset in question is, and whether to disclose the details in the financial statement or to include the intangible asset in the balance sheet with its estimated...

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