Similar to German commercial law, IFRS is about presenting a proper picture of the assets, financial and earnings situation. IFRSs want investors to be able to rely on the information provided to predict future cash flows. Therefore, when accounting for assets according to IFRSs, it is important to take a close look in some special cases. Compared to IFRS, however, HGB has a stronger focus on creditor protection, which makes purely conservative accounting efforts. In the case of IFRS, however, fair value accounting and thus accounting for current values are more important. Among other things, there are also other differences, which are evident in the deferred taxes or the accounting of leased objects. In the further course, we take the assets carefully and also look at difficult tangible assets such as the intangibles.

In the case of International Financial Reporting Standards (IFRS), the claim applies to a presentation of the financial position and profit or loss as realistically as possible. Therefore, assets are generally subject to a fair value valuation. Fair value is defined as the value at which assets or liabilities would be exchanged under normal market conditions by knowledgeable, independent and willing market participants.

Accordingly, there is also a considerable gap between German commercial law under HGB and international accounting standards. German commercial law requires valuation at continued acquisition and production costs in accordance with the acquisition value principle. Furthermore, the precautionary principle is one of the most important principles, namely that assets should be valued pessimistic rather than overly optimistic. In addition, these should be evaluated individually, if this is reasonable and acceptable.

For an asset to be present under IFRSs, it is imperative that there be power over the asset. In addition, the resource must represent the result of events of the past. In addition, the asset is expected to provide future economic benefits to the entity through the resource.

Having just considered the definition of assets under IFRS, the recognition of these assets is now to be explained. This requires a sufficiently secure fulfilment of the definition as well as a sufficiently probable inflow of benefits and, last but not least, this must also be reliable and credible to evaluate. However, it is important to distinguish between tangible and intangible assets.

It is now important to look carefully at which assets are included in the company’s balance sheets. Many companies define the most important resources in the post-industrial age as knowledge and information, which makes the most profit. What is special about this is that these key resources are primarily responsible for technical progress and the further development of business models and yet they hardly find their way into the company’s balance sheets. On the one hand, this can be explained on the basis of the definition shown above. On the other hand, apart from the wage costs of employees, there are no items in the annual accounts that represent the added value that employees generate. Or is it?

This analysis suggests that the know-how and the workforce of the employees flow into other unclear balance sheet items. Intangible assets are eligible in accordance with IAS 38. These are non-monetary but identifiable assets without physical substance. In particular, this means that the asset should either be separable by a purchase, for example, or that there is proof of the existence of the asset on the basis of existing rights, such as patents. The non-existent physical substance and the property of the non-monetary state are rarely problematic to determine.

Similar to normal assets, this first logically depends on a fulfilled definition. In addition, future economic benefits must be likely. Finally, reliable measurability of acquisition and production costs is necessary in order to be recognised in the IFRS balance sheet.

Here, however, it is important to exercise special caution when accounting for assets under IFRS, because intangible assets arise as already mentioned new, sometimes difficult to measure or even identifiable assets. Below are a few examples of this balance sheet category. This includes copyrights such as patents, with the so-called IP Box in Luxembourg having long been the preferred tax treatment of the licence revenues from them. In addition, copyrights, personal rights of influencers, for example, or trademark rights are included. If you as an influencer need support in the evaluation of your personal rights or want to save taxes, you can count on our help.

But when accounting for intangible assets, a distinction must also be made between research costs and development costs, because there is a strict prohibition on accounting for research costs according to IFRS and HGB.

According to IAS 38.57, there is an obligation to activate development costs if various criteria are met. First of all, this includes the technical ability of the company to finish the started project. Furthermore, the intention to use or resell the result which ultimately results from the work itself. In addition, the ability to sell, market or use the project result is required. Another important component is the future economic benefits from it. In addition, the company must also ensure that enough technical, financial and other resources are available to realize the project. Finally, the company is obliged to measure the development costs reliably.

IAS 38.64 defines that self-created trademarks, print titles, publishing rights and customer lists may not be capitalized. This activation ban exists, as these expenses are indistinguishable from the expenses for the development of the entire company.

For research expenses, there is a general prohibition of recognition under IAS 38.55 in the IFRS balance sheet because there is no market-based evidence that the asset will generate economic benefit. In this case, market-based means that the value must be confirmed by a transaction with other comparable market participants, such as a purchase or sale.

The main task of accountants in the preparation of financial statements and balance sheets in this area is thus to distinguish the research costs from the development costs in order to make a proper statement.

Due to the described complications and obstacles to the accounting of certain assets as well as in general self-created assets, these are hardly reflected in the balance sheets of DAX companies. These have, with small industry differences, mainly accounted for cash, receivables, fixed assets and goodwill. The paradox is that some of the most important resources do not enter into the company’s results. find the company balance sheet and a forecast can therefore often only be prepared on the basis of the costs and expenses in certain areas. In addition, it is much more interesting that managers admit to saving on research and development costs if the result does not reach the desired goals towards the end of a quarter. Exactly these costs are the drivers for new developments, products or patents and significantly ensure the success of the company.

It is also partly reflected in companies with digital business models, because they often have their USP in rights, licenses or patents, which were of course never traded on a market before, but were developed exclusively in the company and therefore often should not be accounted for and it would be complicated anyway to determine their correct value. This will also be a topic of discussion in audits of auditors, because there is a great deal of discretion.

Now it is important to note that the valuation of tangible but mainly also intangible assets is of great importance in international accounting, as is the determination of the degree between research and development. In the case of public-interest entities, this aspect is often used as a benchmark to forecast innovation on the one hand and to put profitability and the company’s results in context on the other. Since intangible assets are often important in the context of the digital economy, a global digital tax or, more generally, a global minimum tax is also important. If you have questions about the accounting of tangible assets or the treatment of intangible assets, you are welcome to contact us.