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Concept
Intangible asset
Summary
An intangible asset is an asset that lacks physical substance. Examples are patents, copyright, franchises, goodwill, trademarks, and trade names, as well as software. This is in contrast to physical assets (machinery, buildings, etc.) and financial assets (government securities, etc.). Intangible assets are usually very difficult to value. They suffer from typical market failures of non-rivalry and non-excludability. Today, a large part of the corporate economy (in terms of net present value) consists of intangible assets.
Intangible assets may be one possible contributor to the disparity between "company value as per their accounting records", as well as "company value as per their market capitalization". Considering this argument, it is important to understand what an intangible asset truly is in the eyes of an accountant. A number of attempts have been made to define intangible assets:
The Australian Accounting Standards Board included examples of intangible items in its definition of assets in Statement of Accounting Concepts number 4 (SAC 4), issued in 1995. The statement did not provide a formal definition of an intangible asset, but did explain that tangibility was not an essential characteristic of an asset.
The International Accounting Standards Board standard 38 (IAS 38) defines an intangible asset as: "an identifiable non-monetary asset without physical substance". This definition is in addition to the standard definition of an asset which requires a past event that has given rise to a resource that the entity controls and from which future economic benefits are expected to flow. Thus, the extra requirement for an intangible asset under IAS 38 is identifiability. This criterion requires that an intangible asset is separable from the entity or that it arises from a contractual or legal right.
The Financial Accounting Standards Board Accounting Standard Codification 350 (ASC 350) defines an intangible asset as an asset, other than a financial asset, that lacks physical substance.
Official source
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