Internally generated intangible asset

[Porus]

Hello All!

A higher education institution started the process of getting itself accredited with an American higher education board in 2021, with a view to improving its credentials, marketability and consequently its financial performance. Until the first half of 2022, limited time was spent by its faculty, non-faculty and management in preparing for the achievement of numerous (around 100) accreditation criteria. In the second half of 2022, a significant amount of time was spent by the said staff in updating their systems, internal processes and policies, in order to meet the said criteria. W.e.f second half 2022, the institution decided to capitalise the salary costs of the said staff, based on time spent, into an Intangible Asset. Some costs relating to stationery, administration, etc were also capitalised, although the amount thereof is relatively small compared to the salary costs mentioned above. The accreditation process will end in mid-2023 with a certification, when the Institution expects to achieve all the required criteria.

In your opinion is the "accreditation certification" an appropriate intangible asset under IAS-38 ? I was looking at:
Definition of intangible Asset: Separability, Control, Existence of future economic benefits
Criteria for recognition: Probability of achieving future economic benefits
Development Phase - 6 criteria met ?

[Ketan Marwah]

Hi Porus,

My take would be that this is an internally generated intellectual property (something similar to ISO certification) so I view this as an expense towards developing your business as a whole and not some intangible asset individually. I would not capitalize it therefore. Refer IAS 38.48-50 & 63-64.

[Porus]

Thanks Ketan, my view is also hovering around that conclusion. I think it fails the "separability" test ? Can such a certification be separated from the entity and sold, transferred, licensed, rented, or exchanged (I think not), or does it arise from legal or contractual rights (I think not).

[Ketan Marwah]

Hi Porus,

I think the same. Let’s think in the context of ISO certification to link it to the accreditation case. Can an entity separate ISO certification from the entire business? Can an entity lock the certification despite not fulfilling the desired standards or is the certification granted by the virtue of some contractual arrangement alone without considering the mandate standards that requires to be fulfilled?

If you have “NO” as an answer to the questions above then I would draw the conclusion to your case too in a NO to capitalization (which I already did in my previous post).

[Porus]

Yes, I agree.

[Marek Muc]

Hey guys, see this topic

viewtopic.php?t=620