Harnessing the Strategic Value of Accounting as Intangible Assets

In modern business era, intangible assets such as knowledge, skills, relationships, processes, brands, or culture are vital strategic resources. Governments have started highlighting the importance of intangibles as drivers for economic growth and encouraging firms to pay high attention to their intangible assets. Investment in intangible aspect of business is essential for the companies to provide value-added products and services.

Investors need to understand the emerging importance of intangible assets and corporate value and growth that’ll occur through it.  Intellectual capital has emerged as a leading asset due to transformation of industry from manufacturing base to services base, driven by knowledge workers among the industrialized countries worldwide.

Accounting as Intangible Assets

Accounting as Intangible Assets in Indonesia

In Indonesia, the accounting as intangible assets refers to the Statement of Financial Accounting Standards / PSAK 19 that adopted from International Accounting Standards / IAS 38. Accordance to PSAK 19, an intangible asset requires to be:

  • Identifiable (It must be separable, or it must be capable of being separated from the firms and sold, transferred or licensed or must arise from contractual or legal rights irrespective of whether those rights are themselves ‘separable’)
  • Existence of control (Being able to obtain future economic benefits, and can limit the access of other parties to obtain these economic benefits)
  • Future economic benefits (It could be from revenue from sales of goods or services, cost savings, or other benefits of using these assets

An intangible asset means a non-monetary asset that cannot be seen, touched or physically measured. Its cost is the amount of cash or cash equivalents paid or the fair value of resources expended to acquire an asset when the asset is acquired or built, or when available, the value is attributed to the asset when initial recognition is in accordance with certain PSAK requirements.

It could be categorized as rights such as leases; distribution agreements; employment contracts; covenants; financing arrangements; supply contracts; licenses; certifications and franchises. Or could be as relationships such as trained and assembled workforce; customer and distribution relationships.

Furthermore, it could be as intellectual property such as patents; copyrights; trademarks; proprietary technology (e.g., formulas; recipes; specifications; formulations; training programs; marketing strategies; artistic techniques; customer lists; demographic studies; product test results; business knowledge—suppliers; lead times; cost and pricing data; trade secrets and know-how). Different companies will have different valuable intellectual property. Some companies give more weightage to their trade mark asset; others give more importance to information technologies.

Recognition, Types and Sources of Intangible Assets

Expenditures that do not meet the recognition criteria are recognized as outright expense. 

Criteria for Recognizing Intangible Assets

Intangible assets must be recognized at cost.  And it must only be recognized if, and only if, it is likely that companies will obtain future economic benefits from these assets, and the cost of the asset can be measured reliably. In assessing possibilities, assumptions to be used are those that make sense and can be justified and based on management’s best estimate.

Major Types of Intangible Assets

There are different types of intangible assets in a business organization. Many of these assets can be unique to a specific nature of business, making it very difficult to compile a complete list of these assets. However, some of the major types of intangible assets include patents, copyrights, leaseholds, leasehold improvements, franchising, trademark and brand name, and goodwill.

Acquisition Methods for Intangible Assets

Intangibles can be acquired through; 1.) separate acquisition (recognized at cost which includes purchase price and all costs that can be directly attributed), 2.) acquisitions as part of a business combination (recognized at fair value at the date of acquisition), 3.) acquisition by government grant (recognized at fair value or at face value), 4.) exchange of assets (recognized at fair value, unless there is no commercial substance, the carrying value of the assets released), 5.) goodwill through purchased (internally generated cannot be recognized as an asset as it cannot be identified), and 6.) intangible assets produced internally.

Recognition of Internally Produced Intangible Assets

Sometimes it is difficult to determine whether an intangible asset that is produced internally meets the criteria to be recognized. Therefore, additional criteria are needed where all research expenses are recognized as expenses when incurred intangible assets arising from development activities are recognized if, and only if, all of the following are fulfilled:

  • Technical feasibility of completion- Intention to complete and use or sell it
  • Ability to use or sell
  • Likely to produce future economic benefits
  • Availability of technical, financial and other resources to complete and, use or sell them
  • Ability to reliably measure expenses related to these assets

Brands, newspaper heads, publicity titles, and internally generated customer lists, may not be recognized as intangible assets. Because it cannot be distinguished from the cost of developing the business as a whole.

Indicators of Intangible Assets

Evaluation of several intangible assets is done by means of objective and subjective indicators (see Annexure 2). Annexure 1 presents a few non-financial indicators that may be used to follow the evolution of intangible assets in a firm.

Indicators may vary according to different industries. For example, in the service industry, workers’ turnover is an extremely relevant indicator. In the ‘call center’ of IT-enabled services, employee payroll may represent 60-70% of expenses as these companies have huge employee bases.

If there is a slight decrease in turnover rates, training costs will be reduced, productivity will most likely increase, hiring and firing costs will decrease. Organizational capital, relational capital, and intellectual property rights are major component of objective indicator study.

Importance of Intangible Asset: Why Worth?

Strong brands influence customers’ decision-making power. Brands represent a guarantee of quality and in the case of luxury brands, consumers derive social status also out of the brand. A real financial benefit although not easily quantifiable arises from intangible assets such as brand equity and customer relationships.

Government and Accounting Demands

The reason behind the emerging importance of intangible assets is not only financial but also tax and accounting. The government is also demanding an adequate part of intangible assets in the accounting process though it’s more of a rigorous asset in the management process. Competition for resources will inevitably drive firms towards improving their intellectual (intangible) asset management—and improvement in overall systems and processes of the organization for communicating these initiatives to stakeholders and also shareholders.

Role of Intangible Assets in Performance and Competitiveness

Recently, many well-known companies have announced high profits. However, recent research shows that a significant proportion of a company’s brand value (potentially over 60%) relates to intangible assets. For many firms, strong brand equity and goodwill form major part of this value, but still they are not measured or recorded in the majority of firms. Measurement and management of intangible assets are key issues for the firms.

Performance of firms is highly dependent on their customer relationship, supplier relationship, performance of employees, brand loyalty, etc.—all of these are examples of intangible assets in terms of accounting practices. All these intangible assets are key performance indicators of a firm’s profitability and future performance sustainability. Intangible assets provide potential source of competitive advantages for firms.

Measurement of Intangible Assets

The introduction of new accounting rules had a major impact on the valuation and reporting of intangible assets in the financial statements of the companies. Many blue-chip companies globally are now required to report about intangible assets under International Financial Reporting Standards (IFRS) rules, with some exceptions like Japan, South Korea, Switzerland, Canada and major South American companies. IFRS now requires separate disclosure of intangible assets on an acquiring company’s balance sheet on acquisition if it meets all the criteria for valuation of intangible assets.

Valuation and Reporting of Intangible Assets

Prediction of current market value of intangible assets given both the cause and the conditions of their valuation becomes a practical issue. Intangible assets can have different values at different times just like any other tangible asset. For example, any competing merchant can have huge value of intangible assets and associated customer lists. But if the competing retailer’s business starts incurring loss and loses its brand name and associated customer list, it may realize decrease in the value of its intangible assets. Replacement value, relief from royalty, liquidation value or technology factor analysis are different methodologies for valuation of intangible assets.

Measurement Models: Cost Model and Revaluation Model

As per PSAK 19, measurement subsequent to acquisition, companies have the options to choose either the cost model or the revaluation model for each class of intangible asset:

a. Cost Model: After initial recognition intangible assets should be carried at cost less accumulated amortization and impairment losses.

b. Revaluation Model: Intangible assets may be carried at a revalued amount (based on fair value) less any subsequent amortizationand impairment losses only if fair value can be determined by reference to an active market.

Under the revaluation model, revaluation increases are recognized in other comprehensive income and accumulated in the “revaluation surplus” within equity except to the extent that they reverse a revaluation decrease previously recognized in profit and loss. If the revalued intangible has a finite life and is, therefore, being amortized the revalued amount is amortized.

At SW Indonesia, we specialize in providing expert guidance and support in navigating the realm of Accounting as Intangible Assets. Our team of professionals is well-versed in the intricacies of international accounting standards and can assist you in recognizing, valuing, and managing your intangible assets effectively. Whether you are seeking to optimize your financial reporting, unlock hidden value, or gain a competitive edge, we are here to help. Contact us today at +62 2993 2132 or email us at [email protected] to discuss your specific needs and embark on a journey towards harnessing the true potential of your intangible assets.


  • SW Indonesia

    As the webmaster and author for SW Indonesia, I am dedicated to providing informative and insightful content related to accounting, taxation, and business practices in Indonesia. With a strong background in web management and a deep understanding of the accounting industry, my aim is to deliver valuable knowledge and resources to our audience. From articles on VAT regulations to tips for e-commerce taxation, I strive to help businesses navigate the complexities of the Indonesian tax system. Trust SW Indonesia as your go-to source for reliable and up-to-date information, empowering you to make informed decisions and drive success in your business ventures.

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