IPSAS 31 is based on IAS 38 Intangible Assets and SIC 32 Intangible Assets – Website Costs.
IPSAS 31 prescribes the accounting treatment for intangible assets. Generally, an intangible asset is initially measured at its cost except when the intangible is derived from a non-exchange transaction, than it is initially measured at fair value. Subsequently intangible assets are measured either using a cost or revaluation model, and amortized so that its depreciable amount is allocated on a systematic basis over its useful life, except for intangibles with indefinite lives which are not amortized. Impairment testing should be performed at least annually at the reporting date or whenever there is an indication of impairment and should be executed according to IPSAS 21 or IPSAS 26.
IPSAS 31 was issued in January 2010 and applies to annual periods beginning on or after 1 April 2011.
History of IPSAS 31
Annual periods beginning on or after 1 April 2011.
Refer to IFAC website here
Summary of IPSAS 31 Intangible Assets
IPSAS 31 prescribes the accounting treatment for intangible assets which are not dealt with in other IPSASs. IPSAS 31 has the objective to cover the recognition criteria, the measurement and required disclosures for intangibles assets.
This standard applies to entities that prepare and present financial statements under the accrual basis of accounting [IPSAS 31.2]. IPSAS 31 applies to all public sector entities other than GBEs [IPSAS 31.4].
Following items are excluded from the scope of the standard [IPSAS 31.3]:
(a) Intangible assets that are dealt with in another IPSAS
(b) Financial assets, as defined in IPSAS 28
(c) The recognition and measurement of exploration and evaluation assets
(d) Expenditure on the development and extraction of minerals, oil, natural gas and similar non-regenerative resources
(e) Intangible assets acquired in a business combination
(f) Goodwill acquired in a business combination
(g) Powers and rights conferred by legislation, a constitution, or by equivalent means
(h) Deferred tax assets
(i) Deferred acquisition costs, and intangible assets, arising from an insurer’s contractual rights under insurance contracts within the scope of the relevant international or national accounting standard dealing with insurance contracts. In cases where the relevant international or national accounting standard does not set out specific disclosure requirements for those intangible assets, the disclosure requirements in IPSAS 31 apply to those intangible assets
(j) Non-current intangible assets classified as held for sale (or included in a disposal group that is classified as held for sale) in accordance with the relevant international or national accounting standard dealing with non-current assets held for sale and discontinued operations
(k) In respect of intangible heritage assets. If these assets are recognized the disclosure requirements of this Standard should be applied.
Following items are excluded from the scope of the standard because they are dealt with in another IPSAS [IPSAS 31.6]:
(a) Intangible assets held for sale in the ordinary course of operations (covered by IPSAS 11 Construction Contracts and IPSAS 12 Inventories)
(b) Leases within the scope of IPSAS 13 Leases;
(c) Assets related to employee benefits (IPSAS 25 Employee Benefits)
(d) Financial assets as defined in IPSAS 28. The recognition and measurement of some financial assets are covered by IPSAS 6, Consolidated and Separate Financial Statements, IPSAS 7, Investments in Associates, and IPSAS 8, Interests in Joint Ventures;
(e) Recognition and initial measurement of service concession assets within the scope of IPSAS 32 Service Concession Assets: Grantor. The subsequent measurement and disclosure of these assets is covered by IPSAS 31.
Key definitions [IPSAS 31.16]
An intangible asset: an identifiable non-monetary asset without physical substance
Research: original and planned investigation undertaken with the prospect of gaining new scientific or technical knowledge and understanding
Development: application of research findings or other knowledge to a plan or design for the production of new or substantially improved materials, devices, products, processes, systems or services before the start of commercial production or use
Intangibles in the context of the Public Sector
Intangible assets are non-monetary assets without physical substance. In the public sector context these assets can be cash-generating or non-cash generating, heritage assets (e.g. right to use the portrait of a public personality on stamps or coins, recordings of historical events, etc). Examples of intangibles in the public sector may be:
airport landing rights
licenses to operate television and radio stations
rights to access restricted resources
Intangibles should be recognized as an asset if the following criteria are met:
the items is identifiable and is separable [IPSAS 31.17-25]
the item is controlled by the entity [IPSAS 31.17-25]
it is probable that the future economic benefits or service potential that are associated with the item will flow to the entity [IPSAS 31.28]
the cost or the fair value of the item can be reliably measured [IPSAS 31.28]
An asset is separable if it can be sold, licensed, or rented to another party (either on its own or with another asset / liability) [IPSAS 31.19].
Intangible assets can be acquired through:
acquisition [IPSAS 31.32]
non-exchange transactions [IPSAS 31.42]
exchange of assets [IPSAS 31.44]
internal generation / development [IPSAS 31.49]
as part of a entity combination [not covered by IPSAS to refer to other accounting standards e.g. IFRS 3 Business Combinations)
Intangible assets are initially measured [IPSAS 31.31]:
at cost, including any directly attributable costs
at fair value, if the asset is acquired through on non-exchange transaction
Cost is the amount of cash paid or the fair value of other assets given (exchange of assets) to acquire an asset. Discounting may be needed if payment is deferred [IPSAS 31.39]
If the intangible is measured at cost, the cost should included any directly attributable costs [IPSAS 31.34] but should exclude costs related to the introduction of a new product, cost of conducting a business in a new location or with a new class of customers, administration and general overhead costs [IPSAS 31.36].
Elements of cost [IPSAS 31.34]
o Plus import duties and non-refundable taxes
o Less trade discounts and rebates
Directly attributable costs for preparing the asset in the condition for use as intended
Internally Generated Goodwill and other intangibles
Internally generated goodwill should not be recognized as asset [IPSAS 31.46].
Internally generated items such as brands, mastheads, publishing titles, lists of users of a service and items similar in substance should not be recognized as assets [IPSAS 31.61].
Research and development costs
Research costs should be expensed as incurred [IPSAS 31.52].
Development costs shall be capitalised only if the following can be demonstrated [IPSAS 31.55]:
technical feasibility and the intention to complete the asset for sale or use
availability of resources to complete the development
ability either use it or sell the asset
ability to generate future economic benefits or service potential
reliability of the measurement of the expenses of the intangible asset
If no distinction can be made between the research phase and the development phase of an internal project to create an intangible asset, the costs for that project are treated as if it were incurred in the research phase only and, as a consequence, expensed [IPSAS 31.51].
In-process research and development
An in-process research and development project can be acquired separately an recognized as an asset (including the research component acquired, if any).
Expenditure after the acquisition of the project are accounted for as other research and development costs as described above (i.e. research expensed, development capitalised if criteria for recognition are met) [IPSAS 31.41].
IPSAS 31 permits the application of two models [IPSAS 31.71]:
the fair value model (“the revaluation model”)
the cost model
One accounting policy shall be elected by the entity for each significant class of intangibles and apply this policy to the whole entire class [IPSAS 31.71].
Fair value model
If the fair value model is applied, the intangible is carried at a revalued amount, being its fair value at the date of revaluation less subsequent amortization. Revaluations should be performed by reference to an active market on a regular basis to ensure that the carrying amount is not materially different from the fair value at the reporting date [IPSAS 31.74].
The accounting treatment of revaluation gains or losses (“increase or decrease”) is as follows:
Gains (“increase”): the increase shall added to revaluation surplus (as a component of net assets/equity) except when the increase concerns a reversal of an earlier decrease recognized in surplus or deficit [IPSAS 31.84]
Losses (“decrease”): the decrease shall be recognized in surplus or deficit (i.e. Statement of Financial Performance”) except when the decrease concerns a reversal of an earlier increase recognized in revaluation surplus [IPSAS 31.85]
Derecognition: Upon derecognition the revaluation surplus is directly added to accumulated surplus or deficit (net assets/equity) and not through surplus/deficit [IPSAS 31.86].
If the cost model is elected by the entity, the intangible is subsequently carried at cost less accumulated depreciation and less accumulated impairment losses [IPSAS 31.73]
Intangible assets should classified as intangibles with [IPSAS 31.88]:
Indefinite life: if there is no foreseeable limit to the period over which the asset is expected to generate net cash inflows or service potential for the entity
Finite life: if the useful life is limited, i.e. a limited period or a limited number of production units
Intangible assets with finite lives will be amortized [IPSAS 31.88] while intangibles with indefinite live are not [IPSAS 31.106], instead an entity is required to test this asset for impairment (i) at least annually or (ii) whenever there is an indication of impairment [IPSAS 31.107].
The residual value is assumed to be zero, unless a commitment from a third party or an active market indicate otherwise [IPSAS 31.99].
The useful life of an intangible should be reviewed at least at each reporting date and when expectations differ from earlier estimates, any change should be treated as an change in accounting estimate in accordance with IPSAS 3, i.e. prospectively [IPSAS 31.101].
Amortization starts when the intangible is available for use [IPSAS 31.96].
Amortization ceases upon derecognition or classification as held for sale [IPSAS 31.96].
Depreciation method shall reflect the pattern in which the asset’s future economic benefits are expected to be consumed by the entity [IPSAS 31.96].
o straight line method, mostly used (in case pattern of benefit cannot be reliably determined)
o other methods diminishing balance method, units of production method
Methods is changed only when expected pattern of benefits has changed [IPSAS 31.97]
Factors to be taken into account when determining useful life [IPSAS 31.89]:
o expected usage of the asset by the entity, typical product life cycles for similar assets and dependence on other assets of the entity
o the stability of the industry in which the company is operating, and the expected actions of competitors
o the speed of technological change and expected obsolescence
o the level of maintenance
o the period of control over the asset and legal or similar limits on the use of the asset, such as the expiry dates of related leases
Intangibles with Indefinite lives
Intangibles with indefinite live are not amortized [IPSAS 31.106] but an entity is required to [IPSAS 31.107]:
test the asset for impairment at least annually
test for impairment whenever there is an indication of impairment
Furthermore, the entity is required to review the useful lives of the intangible assets each year to determine if circumstances and conditions still support the indefinite life [IPSAS 31.108].
In determining whether an intangible is is impaired, an entity applies [IPSAS 31.110]:
IPSAS 21 for non-cash generating assets
IPSAS 26: for non-cash generating assets
Summarized accounting treatment of an impairment loss (excl CGU’s):
When an intangible is impaired (i.e. recoverable amount < carrying amount), the carrying amount is reduced to the amount of the recoverable amount [IPSAS 21.52 – 26.72].
This decrease of the carrying amount is an impairment and is recognized in surplus or deficit [IPSAS 21.54 – 26.73].
After recognition of an impairment loss, the depreciation charge of the asset shall be adjusted in future periods to allocate the asset’s revised carrying amount over its remaining useful life [IPSAS 21.54 – 26.75].
An intangible should be derecognized [IPSAS 31.111]:
when no future economic benefits are expected from its use or disposal
Gain or loss is the difference between the payment received (discounted if payment is deferred) and the carrying amount (NBV) of the item [IPSAS 31.112].
Gains or losses are recognized in surplus or deficit [IPSAS 31.112] (except for sale and leaseback, refer to IPSAS 13).
Upon disposal of an intangible valued under the “fair value model”, the possible revaluation surplus included in net assets/equity should be added directly to accumulated surpluses or deficits (as part of net assets/equity). Transfers to accumulated surpluses/deficits are not performed through surplus or deficit (Statement of Financial Performance) [IPSAS 31.86].
Intangible Heritage assets
Intangible Heritage assets are intangible assets of value because of its cultural, environmental, educational or historical significance for a nation or society (not as such defined in IPSAS)
An entity is not required to recognize intangible heritage assets. If the recognition criteria for these intangible assets are met and the entity elects to recognize these assets the entity may (not obligatory) apply the measurement criteria of IPSAS 31 and is required (obligatory) to the disclosure requirements of the standard [IPSAS 31.11].
Examples of intangible heritage assets are [IPSAS 31.12]:
- recordings of significant historical events
- rights to use the likeness of significant public personality on postage stamps or coins
For heritage assets recognized the disclosure requirements (cfr infra) of IPSAS 31 are applicable.
Required disclosures for each class of intangible assets [IPSAS 31.117]
if useful lives or finite or indefinite, and if finite the useful lives or amortization rates
amortization method applied for items with finite lives
gross carrying amount and accumulated amortization and impairment losses at beginning and end of the period
reconciliation of the carrying amount at the beginning and the end of the period, showing:
o additions from acquisition
o additions from internal development
o intangibles classified as held for sale or included in a disposal group
o revaluation increases or decreases
o impairment losses
o reversals of impairment losses
o net exchange differences
o other changes
Further required disclosures [IPSAS 31.121]
for an intangible with indefinite life: carrying amount and the significant factors determining that the intangible has an indefinite life
for individually material intangibles : description, carrying amount and remaining amortization period
for intangibles acquired through a non-exchange transaction:
o fair value at initial recognition
o carrying amount
o measurement model elected (cost or fair value model)
for restricted and pledged intangible assets: carrying amount
contractual commitments to acquire intangible assets
For intangibles stated at revalued amounts [fair value model], additional disclosures are required [IPSAS 31.123], including.
the effective date of the revaluation
the methods and significant assumptions used for the estimation of fair values
revaluation surplus, indicating the change for the period and any restrictions on the distribution of the balance to shareholders or other equity holders
the aggregate of all revaluation surpluses
With regard to Research and Development Expenditure [IPSAS 31.125]: total amount of research and development recognized as an expense during the period.
Issuance of IPSAS 31: Intangible Assets
1 April 2011
Effective date of IPSAS 31
1 January 2014
Amendment from IPSAS 32 (issued in October 2011)