Accounting for Intangible Assets and Reporting ... - Icabr.com

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pricing of long-term intangible and tangible assets, depreciation principles, procedure ofaccount recognition on acquisition, technical valuation and asset write off. Like the otherstandards the Czech Accounting Standard no 013 is governed by Act no 563/1991 Coll.,on Accounting, and Decree no 500/2002 Coll., executing some provisions of theAccounting Act. These legislative sources represented the basis for preparation of thefollowing part of my article.The standard contains the list of assets defined as long-term intangible assets. Theseinclude establishment costs, intangible results of research and development, software,rights of determinable value and goodwill. The condition for classification as long-termintangible asset is usable life of more than one year and the asset value higher than thevaluation limit determined by the accounting unit. This class also includes other longtermintangible assets, long-term intangible work in progress, and advances provided forthis type of assets.• Establishment costs are defined as all expenditures incurred for establishment ofthe accounting unit until the moment of its incorporation. These costs include inparticular the court and administrative fees, costs of business trips, remunerationfor mediation and advisory services and rent. Costs of acquisition of long-termtangible assets and inventories, representation costs or costs related to thecompany transformation are not included in the establishment costs.• Intangible results of research and development (R&D) – for results of researchand development to be eligible for inclusion in long-term intangible assets theyneed to be developed by in-house activity and intended for trading, or acquiredfrom other parties.• Software must be developed in-house for the purpose of trading or acquired fromother parties – suppliers.• Rights of determinable value – these are in particular subjects of industrial andsimilar ownership, results of creative activity and rights pursuant to speciallegislation, if created by in-house activity for the purpose of trading or acquiredfrom other parties. Rights of determinable value include for example industrialpatterns, usable patterns, registered trademarks and patents.• Goodwill is a positive or negative difference between the valuation of the entity,or its part in the sense of the Commercial Code, acquired by purchase, depositor asset and liability appreciation in the context of company transformation,except for change of legal status of the company, and the sum of the individuallyrevaluated asset items reduced by taken over liabilities.• Other long-term intangible assets include emission permits and preferential limitsand long-term intangible assets not recognised elsewhere. The emission permitsinclude greenhouse gas emission permits, and emission reduction units andverified emission reductions by project activities regardless the appreciationamount.• Long-term intangible work in progress includes acquired long-term intangibleassets in the period of their acquisition until establishment of the asset conditionsuitable for launch of operation.• Provided deposits for long-term intangible assets include short-term and longtermadvance deposits provided for the purpose of acquisition of long-termintangible assets.1.4 Comparison of Czech and International Accounting Standards Related toIntangible Assets
The basic difference between Czech and international accounting standards isrepresented by their respective legal frameworks. Both IFRS and US GAAP focus onprinciples, and thus do not defined exact accounting procedures. The Czech accountingstandards, on the other hand, are part of the legislation binding for all companiesregistered in the Czech Republic. The appearance of Czech accounting is considerablyaffected by the tax legislation, which may be a source of certain inflexibility of the systemand may lead to acceptance of standpoints based on tax considerations rather than onthe concept of faithful and fair reflection of a transaction in its essence. The Czechaccounting system is formulated by legislators, which both IFRS and US GAAP areformulated by non-governmental non-profit organisation. The Czech accountingregulations are focused on accounting from the tax viewpoint and partly from theinvestor viewpoint. On the other hand both international accounting systems areprimarily focused on reflection of the reality for use by investors.Tab. 1 Selected differences in reporting of intangible assetsArea IFRS US GAAP Czech accountinglegislationDefinitionEvaluationCapitalizationof R&DDepreciationSource: authors resultsEconomic sourcemanaged by acompany that is usedto profitAll costs directly linkedto creation of capitaland its usageAllowed only costs indevelopmentIt has no physicalvalue, company willretain na economicadvantage in thefutureAll costs necesseryro register andestablish legalcontractsForbiddenNot always compulsory Necessery to writeoff capital that has acertain expirationdateNo definition, list anumber of itemsAll direct and indirectcosts linked toexploitationAllowed for costsboth R&DFollowing regulationsexpressed in the lawThe differences between the Czech and the international regulations begin with the verydefinition of intangible assets. While the Czech accounting legislation defines this termby a list of items meting the definition, both IFRS and US GAAP define intangible assetsby their properties. Both international systems emphasize the absence of physicalessence of intangible assets, and IFRS in addition mention three signs of intangibleassets – they are identifiable, controllable and bring future economic benefits. TheCzech standards on the other hand emphasize usable life longer than one year and thefact that the asset value is higher than a limit specified by the company.The list of intangible asset items of the Czech intangible asset definition includeestablishment costs, recognised directly in costs by both international accountingsystems, for pursuant to their interpretation they do not bring and future benefits to thecompany.If the assets are not purchased but developed in-house, the Czech accountingstandards appreciate them on the basis of in-house costs of development. This isconditioned by the purpose of the asset, which is its trading. IFRS distinguish betweenthe research and the development stage in this asset type. Only the development stagerelated costs may be activated and only after fulfilment of certain conditions (completionis feasible, the company possesses sufficient resources for the completion etc.).
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Accounting for Intangible Assets and Reporting ... - Icabr.com

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