Most companies in Dubai UAE often incur large costs that they anticipate recouping in the future.
Software engineers are paid salaries by companies if they develop a game or application.
How would businesses handle these costs?
Because the company will reap the benefits of these expenses in the future, it is not okay to place all salaries for these engineers in profit and loss.
Or, to put it another way, the costs now will be offset by future revenues.
What is an intangible asset?
This article will provide a brief summary of the main rules that audit firms in Dubai and other entities follow when accounting for intangible assets.
IAS 38: What assets are included?
The accounting rules for all intangible assets, except those covered by another standard, are set out in the standard IAS 38.
What’s excluded?
IAS 12 Income taxes covers deferred tax assets
Goodwill – Stipulated By IFRS 3 Business Combinations
Intangible assets that are available for sale – covered under IFRS 5, Non-Current Assets Held for Sale and Discontinued Operations.
Financial assets are covered by IAS32 Financial Instruments: Presentation, and IFRS9 Financial Instruments.
IFRS 6 Exploration for Evaluation of Mineral Assets covers exploration and evaluation.
Expenditures to develop and extract minerals, oils, and natural gas, and other non-regenerative resource, etc.
What is an intangible asset, you ask?
An intangible asset can be defined as a non-monetary identifiable asset that is not physical. This is the definition of IAS 38, par. 8.
This definition can be interpreted in many ways by people. IAS 38 provides good guidance for how Dubai company audit experts can use it.
What is the best way for Dubai internal auditors to recognize an intangible asset
Sometimes, even though an item meets all criteria and has all the characteristics of an intangible assets, financial auditors cannot recognize it in financial statements.
This could be because the item doesn’t meet the recognition criteria.
An intangible asset can only be recognized when:
- Future economic benefits are possible from this asset
- It is possible to measure cost accurately.
- If you create the asset internally:
- It’s easy to determine whether an item is an intangible asset when company buy it from another person.
- It is also more likely that the recognition criteria will be met.
What about when creating intangible assets?
This area is very complicated and difficult. IAS 38 provides specific guidance to audit firms in Dubai on how to generate intangible assets internally.
Research
Research is the process of acquiring knowledge and understanding through research.
A business might be looking at different options for its software product.
It might also be analyzing the products that are on the market and trying to identify their weaknesses to create a better product.
Research expenditures cannot be capitalized.
It must be expensed in profit or loss, as it was incurred.
We would like you to note that all feasibility studies, which evaluate whether the project can be financially viable, are research and must be paid for in profit or loss.
Yes, even if the company spent a lot of money.
This applies to both the internal and external research.
Development
Usually, development occurs after the research phase.
During the development stage you plan or design new products, processes, and material before commercial production or usage.
It is important to differentiate between research and development, as entities can CAPITALIZE expenditures for development.
Goodwill
Entities should never capitalize on internally generated goodwill.
The goodwill acquired through business combination can only be recognized.
Other assets internally created
A company might have created other intangible assets such as brands, customer lists or publishing titles.
IAS 38 forbids the capitalization of these assets, even if they are created internally. This is because it is difficult, if not impossible, to accurately measure their cost.