Intangible assets

Intangible assets are identifiable non-monetary assets without physical substance.

Intangibles can be grouped into three broad categories — rights, relationships and intellectual property:

  1. Rights. Leases, distribution agreements, employment contracts, covenants, financing arrangements, supply contracts, licences, certifications, franchises.
  2. Relationships. Trained and assembled  workforce, customer and distribution relationships.
  3. Intellectual property. Patents; copyrights; trademarks; proprietary technology (for example, formulas, recipes, specifications, formulations, training programs, marketing strategies, artistic techniques, customer lists, demographic studies, product test results); business knowledge — such as suppliers’ lead times, cost and pricing data, trade secrets and know-how.

Internally generated intangibles cannot be disclosed on the balance sheet, but are often significant in value, and should be understood and managed appropriately. Under IFRS 3, only intangible assets that have been acquired can be separately disclosed on the acquiring company’s consolidated balance sheet (disclosed intangible assets).

The following diagram illustrates how intangible value is made up of both disclosed and undisclosed value.

Intangible assets

‘Undisclosed intangible assets’, are often more valuable than the disclosed intangibles. The category includes ‘internally generated goodwill’, and it accounts for the difference between the fair market value of a business and the value of its identifiable tangible and intangible assets.

Although not an intangible asset in a strict sense — that is, a controlled ‘resource’ expected to provide future economic benefits — this residual goodwill value is treated as an intangible asset in a business combination on the acquiring company’s balance sheet. Current accounting practice does not allow for internally generated intangible assets to be disclosed on a balance sheet. Under current IFRS only the value of acquired intangible assets can be recognised.

Marketing related intangibles

Customer related intangibles

Contract related intangibles

Technology related intangibles

Artistic related intangibles

Trademarks, trade names

Service marks, collective marks, certification marks

Trade dress (unique colour, shape, or package design)


Internet domain names


Non-competition agreements

Customer lists

Order or production backlog

Customer contracts & related customer relationships

Non-contractual customer relationships

Licensing, royalty, standstill agreements

Advertising, construction, management, service or supply contracts

Lease agreements

Construction permits


Franchise agreements

Operating and broadcasting rights

Use rights such as drilling, water, air, mineral, timber cutting & route authorities

Servicing contracts such as mortgage servicing contracts

Employment contracts

Patented technology

Computer software and mask works

Unpatented technology


Trade secrets, such as secret formulas, processes, recipes (think of Coca Cola)

Plays, operas and ballets

Books, magazines, newspapers and other literary works

Musical works such as compositions, song lyrics and advertising jingles

Pictures and photographs

Video and audio-visual material including films, music, videos, etc.

In order to be ‘identifiable’ intangible assets must either be separable (capable of being separated from the entity and sold, transferred or licensed) or it must arise from contractual or legal rights (irrespective of whether those rights are themselves ‘separable’).

Therefore, intangible assets that may be recognised on a balance sheet under IFRS are only a fraction of what are often considered to be ‘intangible assets’ in a broader sense.

However, the picture has improved since 2001, when IFRS 3 in Europe, and FAS 141 in the US, started to require companies to break down the value of the intangibles they acquire as a result of a takeover into five different categories — including customer- and market related intangibles — rather than lumping them together under the catch-all term ‘goodwill’ as they had in the past.

But because only acquired intangibles, and not those internally generated, can be recorded on the balance sheet, this results in a lopsided view of a company’s value. What is more, the value of those assets can only stay the same or be revised downwards in each subsequent year, thus failing to reflect the additional value that the new stewardship ought to be creating.

General model of measurement of insurance contracts

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