Intangible assets are, due to their intangible nature, often more difficult to handle for the accounting entity or its accounting department than tangible assets. In today's article, we will therefore summarise the basic rules for identification and recognition of long-term intangible assets first, and then we will focus on the rules for their reporting and other related information, which is published in the financial statement. We will look at intangible asset not only from the perspective of Czech accounting regulations, but also from the perspective of the IFRS.

From the perspective of Czech accounting regulations, mainly intangible results of research and development, software, valuable rights, goodwill and emission permits and preferential limits represent long-term intangible assets. The period of usability of such assets must be longer than 1 year and their valuation must be higher than the limit set by the accounting entity in its internal guideline (with the exception of goodwill and emission permits and preferential limits). In case of intangible results of research and development, another limiting condition is that they must either be acquired from another person or be formed by own activity for trading with them. Internally created software, which will only serve for the purposes of the company, thus cannot be accepted as an intangible asset. Software for managing technologies or for devices, which cannot function without this software, also cannot be considered long-term intangible assets. Such software is then part of the given long-term tangible asset.

From the perspective of valuation, intangible assets are valuated at their acquisition price and the costs relating to their acquisition in case of purchase and own costs in case of their creation by own activity. From such a set valuation, long-term intangible assets are then depreciated based on a depreciation plan set by the accounting entity. The exceptions are the preferential limits and emission permits. Emission permits are not depreciated at all, in the case of preferential limits only those, which can be depreciated according to time of performance.

Long-term intangible assets are posted in the balance sheet in section B.I. In addition to the above-mentioned entries, provided advance payments for long-term intangible assets and unfinished long-term intangible assets are posted here, too. The requirements on the publication of other information related to long-term intangible assets, which should be published in the notes to the financial statement, depend on the category of the accounting entity. Large and medium-size accounting entities, as well as small and micro accounting entities with a duty of verification of the financial statement by an auditor will state the balance at the beginning and the end of the accounting period including the increase and decrease in the course of the accounting period in the notes for the individual entries of long-term assets, the information about the height of adjusting entries at the beginning and at the end of the accounting period, including the information about their increase or lowering in the course of the accounting period and the height of interests, which are included in the valuation of long-term assets, if the accounting entity has decided that they are part of the valuation of long-term intangible assets. Other accounting entities do not need to publish further information.

Within the IFRS, mainly the IAS 38 deals with intangible assets. According to the IFRS, intangible assets are identified non-monetary assets without physical substance. The IAS 38 also mentions examples of intangible assets. These are usually computer programmes, patents, copyrights, films, lists of clients, rights to mortgage servicing, fishing permits, import quotas, licences, client or supplier relations, customer loyalty, market share and marketing rights. In order for an entry to be accepted as an intangible asset, it needs to fulfil the definition of an intangible asset, that is identifiability, control of the source and the existence of future economic benefits, and at the same time it must be probable that the future economic benefits arising from the asset will go to the accounting entity and the procurement costs of the asset need to be reliably valuable.

From the perspective of valuation, intangible assets are primarily valuated at acquisition costs. These include the acquisition price including the import custom charges and non-reimbursable taxes paid with the purchase after deduction of trade discounts and rebates and any costs directly assignable to the preparation of the asset for its intended use. From the perspective of the IFRS, the period of usability of an intangible asset is very important. The accounting entity needs to assess, if the period of usability of the asset is finite or indefinite. If the period is finite, the accounting entity needs to set its length or the number of outputs from the use of the asset until the end of the period of its usability. An intangible asset with an indefinite period of usability is an asset, for which it is not possible to determine the end of the period, for which the asset can be expected to bring the accounting entity future economic benefits, based on an analysis of all relevant factors. Setting the period of usability is important for setting the depreciation of an intangible asset. Intangible assets with an indefinite period of usability are not depreciated, only tested for lowering of their value every year. The rules for testing such assets are described in IAS 36 Impairment of Assets.  Every year, the accounting entity also needs to re-examine, if the conditions continue, based on which the period of usability of the asset was assessed as indefinite. The term “indefinite” thus does not mean “unlimited”. If the accounting entity reaches the conclusion that the period of usability is no longer indefinite, it needs to start approaching the asset as an asset with a finite period of usability. The accounting entity depreciates such assets.

When posting intangible assets, an accounting entity must publish the following for every group of intangible assets (differentiating between intangible assets created by own activity and other intangible assets): especially whether or not the periods of usability are finite or indefinite, in case of finite periods their length or the depreciation rates used, the depreciation methods used for intangible assets with a finite period of usability, the gross accounting value and any accumulated depreciations at the beginning and the end of the accounting period, matching the accounting value at the beginning and the end of the period, showing the increases and decreases, including the reason for these increases and decreases. The accounting entity further needs to publish information about the lowering of the value of intangible assets, the information about the accounting value of intangible assets with an indefinite period of usability and the reasons why the accounting entity has evaluated the period of usability as indefinite.

In one of the upcoming issues of our newsletter, we will focus more on research and development. If you do not know how to approach intangible assets in your company, do not hesitate to turn to us.