Financial reporting of intangible assets in Government

The Financial Reporting Manual (FReM) details requirements relating to intangible assets (IA), which is based on International Accounting Standard 38 (IAS) principles. The FReM External Link identifies five categories for the purposes of analysing IA in public sector accounting as (see section 5.4.43):

  • information technology – software developed in-house or by third parties (but not software licences);
  • software licences – the right to use software developed by third parties;
  • websites;
  • development expenditure;
  • licences, trademarks and artistic originals – original films, sound recordings, etc. on which performances are recorded or embodied;
  • patents – inventions that are afforded patent protection; and
  • goodwill.

The FREM states that for the purposes of Whole Government Accounting the principles of the International Accounting Standard 38 (IAS-38) should be interpreted for the treatment of IA and offers guidance on the interpretation of IAS-38 for the public sector and some qualifications. In particular, the FREM details revaluation of intangibles profit/loss as a mandatory category in relation to the "statement of comprehensive net expenditure" for departments and executive agencies obligations under the "Government Resources and Accounts Act 2000 and the Government Resources and Accounts Act (Northern Ireland) 2001" (see section 5.4.9).

International Accounting Standard 38 - Intangible Assets

IAS-38 External Link outlines the criteria for identification and treatment of IA. In particular IAS-38 states that

Intangible asset is recognised if and only if 1 and 2 are satisfied:

  1. probable future inflow of economic benefits
  2. cost of asset can be reliably measured

It also says that internally generated goodwill is not recognised as an asset for accounting purposes. However, it should be noted that the FREM states "when capitalising internally generated intangible assets, such as software, only directly attributable costs, including staff costs and staff-related costs, should be capitalised".


Reviewed 22 July 2010