Accounting for Intangible Assets in Scandinavia, the UK, the US, and by the IASC: Challenges and a Solution

Improved accounting for intangible assets is one of the major challenges to future financial reporting. Conventionally, resources spent on intangibles such as knowledge, design, licenses, and trademarks have been expensed and hence treated merely as costs and not as investments with book values. Such an arbitrary way of dealing with intangible resources is believed to have increasingly reduced the value-relevance of financial reporting as the importance of intangibles in the economy has increased over time. Intangible resources that meet certain criteria for asset recognition should be capitalized as assets and their costs amortized over the best estimate of their useful lives. In this article, we argue that the value-relevance of financial statements would be further improved if previously expensed costs are partly reversed and capitalized if, at a later period, the intangible item in question meets the asset recognition criteria. The increased income variation due to reversed expenses would be a signal of earnings potential and risk.