From an accounting perspective, intellectual property (IP) assets are capitalized invested amounts in IP that testify to the fact that some of a company’s available resources are being used with consideration for the long term. This is not the case for all IPs: those that are not capitalized are expensed in the profit and loss account (P&L), like any current operational expenses. In other words, some IP assets are considered long-term investments while others have the same status as the electricity bill. In the first case, IP assets are represented and named in the balance sheet of the company,¹ where equity and liabilities (on the right side of the balance sheet) represent the resources available to the company for running its activities. On the left side of the balance sheet, one finds the destination of those invested funds. These include three categories of investments: i) the fixed assets, held for a long term, that include intangible, tangible, and financial assets; ii) the current non-financial assets, which include assets related to running the operating cycle, inventories and receivables; and iii) the current financial assets comprising funds invested in the short term that usually represent what is left over after investing (cash, deposits, etc.), often regarded as “the bumpers.” Assets held for the long term are those with a usage horizon superior to one year. They have acquired IP assets either on an IP market or through a business combination. Those IPs are recognized in the category of intangible assets, i.e., those assets that are neither physical nor financial. In the second case, when spending on IP assets is treated like common operational expenses recorded in the P&L, the accounting recording assumes that the spending only matches the current fiscal year, i.e., that the IP is related to short-term spending, which is not an investment. Also, there is no specific category for that spending, thus, the expenses related to IP are difficult to track. In short, accounting principles have resulted in a dual treatment of IP assets, which raises at least three main issues:

i) Their recognition: when can IP assets be recognized in the balance sheet?

ii) Their initial valuation: when recognition is possible, at what value should the IP be first recorded? Which valuation approach should be used?

iii) Their revaluation: because IP values are not uniform along lifetimes, periodical evaluations must be conducted. This could lead to the recognition of a value loss evidenced through an impairment test. The direction of the revaluation process changes across standards: the International Financial Reporting Standards allow a positive revaluation whereas the U.S. Generally Accepted Accounting Principles (GAAP) only admit a loss of value through impairment.

After an overview of accounting rules related to in tangible assets, the present article introduces a case study, inspired by a real valuation case, to address valuation and revaluation issues and discuss means to integrate risks in valuation for accounting purposes. Notably, international accounting standards and U.S. GAAP differentiate intangible assets according to how they are invested. Because les Nouvelles is an international publication, this article focuses on the international standard, IAS 38-Intangible Assets, which differs in certain aspects from the U.S. standard (ASC 350).

Intangible assets are recognized (i.e., can be recorded) in the balance sheet when they comply with the identifiability rule (IAS 38 §12). An asset is deemed identifiable when it is (i) separable, i.e., capable of being separated or divided from the entity and sold, transferred, licensed, rented or exchanged, either individually or together with a related contract, identifiable asset or liability, regardless of whether the entity intends to do so; or (ii) arises from contractual or other legal rights, regardless of whether those rights are transferable or separable from the entity or from other rights and obligations. However, the condition of identifiability is not sufficient for an intangible asset to be recognized, there are two further conditions (IAS 38 §21): (i) it is probable that the expected future economic benefits that are attributable to the asset will flow to the entity; and (ii) the cost of the asset can be measured reliably. Those conditions are verified by assessing “the probability of expected future economic benefits using reasonable and supportable assumptions that represent management’s best estimate of the set of economic conditions that will exist over the useful life of the asset” (IAS 38 §22), where the best estimate is understood as the most probable estimate, i.e., the scenario that has the highest probability of occurrence. Notably, if the expected future benefits condition relies on Prospective Financial Information (PFI), those cannot always be used in the financial statements for measuring the value of the as set. To be clear, PFI is a condition for valuation, not a valuation approach. Indeed, an intangible asset shall be measured initially at cost (IAS 38 §24).

In many cases, the first recognized value of an intangible asset consists of the purchase price of its separate acquisition. The cost of a separately acquired intangible asset is defined as comprising (IAS 38 §27-28): (i) its purchase price, including duties and taxes, discounts and rebates; and (ii) any directly attributable cost of preparing the asset for its intended use, such as the costs of employee benefits, professional fees or the costs of testing whether the asset is functioning properly. The rule is different for intangible assets acquired through business combinations, by way of a government grant, or via an exchange of assets, as those are measured at their fair value unless the transaction lacks commercial substance or no fair value is reliably measurable (IAS 38 §45).

Internally generated assets face a more challenging situation and are neither recognized under international accounting standards, nor under U.S. GAAP. Their identifiability is problematic because i) their cost is likely not separable from other activities such as the maintenance of the goodwill in place (IAS 38 §51) and ii) because there exists no active market for trading those intangibles (IAS 38 §72). Thus, internally generated brands, mastheads, publishing titles, customer lists and items similar in substance shall not be recognized as intangible assets (IAS 38 §63). This brings into question the definition of the similarity of other IP assets. However, on the matter, specific guidelines are absent.

The intangible assets recognition process consists of first identifying its generation either i) in a research phase or ii) in a development phase. Intangible assets arising from research shall never be recognized (IAS 38 §54) in the balance sheet and expenditure on research shall be expensed in the year when it is incurred. An intangible asset arising from a development phase can be recognized in some instances. To do so, the entity must demonstrate all of the following (PIRATE) business items (IAS 38 §57):

(a) How the intangible asset will generate Probable future economic benefits from sales—this supposes either the demonstration of the existence of a market for the output of the intangible asset or the intangible asset itself - or it is based on the usage of the intangible asset.
(b) Its Intention to complete the intangible asset and use or sell it,
(c) The availability of technical, financial, and other resources to complete the development of the asset.
(d) Its Ability to use or sell the intangible asset,
(e) The Technical feasibility of completing the intangible asset so that it will be available for use or sale,
(f) Its ability to measure reliably the Expenditure attributable to the intangible asset during its development.

When all those conditions are verified, the intangible asset can be recognized at cost, which also includes all directly attributable costs necessary to create, produce, and prepare the asset, excluding SG&A and training expenditures. Once IP assets are present in the balance sheet, they are subject to revaluation at the end of each year. The process is called “measurement after recognition.” To do so, the entity can proceed in two ways. The first consists of applying a basic cost model where the intangible asset is carried at its cost less any accumulated amortization. The second is the revaluation model which is its fair value at the date of the revaluation (i.e., at the end of a reporting period) less any subsequent accumulated amortization and any subsequent accumulated impairment loss (IAS 38 §74 & 75). The second model makes it possible to increase the carrying amount as a result of a revaluation under some strict conditions. The spread of the measure is then recognized in other comprehensive income and accumulated in equity under the heading of revaluation surplus. A decrease should, however, be recognized in profit and loss (IAS 38 §85 & 86).

The valuation approaches, whether at cost or based on fair value, require the identification of a useful life, either to set the amortization period or the PFI horizon. Notably, the accounting concept of asset useful life can differ from the legal one. In accounting, the useful life is either finite or indefinite, but never infinite. It is assessed based on different factors such as the potential usage of the asset, its obsolescence, competitors’ behavior, and maintenance costs, and cannot exceed the lifetime of the contractual or legal rights from which the asset arises, but can be shorter if the usage value is shorter (IAS 38 §88 & 92). For an asset with a finite life, it is required that an impairment test is conducted at the end of every year when there is an indication that the asset may be impaired. Impairment rules are not specified in the standard IAS 38 but can be found in IAS 36—Impairment of Assets. The impairment process consists of testing the asset value by comparing three different measures, obtained by applying three different valuation approaches: the market value of the asset, its usage value, and its historical cost after amortization (the carrying amount). In the case when the adjusted historical costs are the largest value, the intermediary value of the three is adopted for a re-evaluation of the intangible asset.

The rest of the present article develops a case study that illustrates the various instances in which IP valuation matters for accounting purposes. The case is inspired by real facts but substantially adapted to simplify the demonstration. The setting is the entity IG, an industrial group that is not listed and which applies national GAAPs that converge with IFRS.

At the beginning of the year N, IG seeks the purchase of a startup, SU, whose value is mainly made of patents (80 percent) that have been developed by the CEO. It follows that most of the activity of SU depends on the knowledge and the network of that one key individual. IG is primarily interested in the usage value of the patents, whereas the relational capital of the SU is less noteworthy. The patents can be useful in pursuing the development of SU’s products and can be integrated into a larger class of products offered by IG.

IG uses the service of experts in qualitative and quantitative valuation to produce a usage value based on the Discounted Cash Flow (DCF) approach, consistent with IFRS requirements. The quantitative valuation expert’s task starts with examining the available information—the existing due diligence, the qualitative patent analysis, and the confidential agreements—to identify the following features:

• The expiration date of the patents of interest is N+12.
• The operational activity of SU is expected to grow at a pace of 3 percent per year.
• It is possible to reduce the current operating costs by canceling the family members’ salaries and by reducing accounting costs as IG can internalize this function.
• At the time when the valuation is conducted, the interest rates are low (0.5 percent), and in the absence of debt, the Weighted Average Cost of Capital (WACC) is equal to the cost of equity, i.e., 10 percent using the Capital Asset Pricing Model (CAPM), which is consistent with IAS 36.

A 12-period business plan containing PFI based on the existing activity and adjusted for the operational changes described above produces an indication of value compliant with IAS 38 §21, which requires the assessment of “the probability of expected future economic benefits using reasonable and supportable assumptions.” The resulting Free Cash Flows (FCF) are discounted at the assumed WACC. The result establishes SU’s price at 975 K€. With such information, at the beginning of the year N, IG starts the negotiation process, which results in a purchase price of 1,100 K€.

Within that overall value, the value of the patents is estimated to be 880 K€ (Figure 1). Thus, there is a 12 percent premium in the negotiated price as compared to the result of the DCF approach. The DCF method is a deterministic method that supposes nothing less than the fact that the future is known with certainty. As this is obviously not true, the valuer must capture uncertainties around the assessed value. One way to do so is to examine multiple scenarios by re-calibrating the financial model. The process consists of modifying the base case inputs in such a way that all inputs (revenues or expenses) are not a single hypothesis but ranges of values, or even better, distributions of values. This is done with the help of simulation software. This exercise should always be practiced with the highest level of caution, respecting some methodological rules that are not explored in detail here.

Figure 2 displays the results of simulations run on the Crystal Ball software. It represents the probability density function of 5,000 expected values for SU. Each simulation result is a particular combination of input values randomly drawn within the potential distribution of values of each input. Running a simulation requires attentive financial modeling and precautious preparation work on the spreadsheet. Simulation software already possesses many features that make it easy to perform a simulation, with many modeling features available. Some specifications in the software remain manual. When modeling, the valuer keeps in mind that the same model should be applicable all along the asset lifetime (IFRS 2023). In other words, the spreadsheet is destined to survive the punctual valuation and be updated rather than being completely rebuilt at the end of the following years.

In any case, the simulation produces a distribution of probabilities of values hereafter commented (Figure 2). Notably, this result is only partially duplicable as running a second simulation with the same inputs and hypothesis will result in the drawing of different combinations. Hence, the results of a second simulation with the same starting points will slightly differ from the chart below, especially in the units of values, but the moments (median, standard deviation) will converge very closely and so will the overall distribution shape.

Figure 2 provides some interesting insights:
The histogram represents the frequency (vertical axis) of the DCF resulting value (x-axis). For example, the value of 100 K€ has a frequency of zero, whereas the value of 975 K€ has a frequency of more than 2 percent, which means that 100 results out of 5,000 converged towards the base case.

• The median—968 K€ stands below the base case and indicates that 50 percent of possible values sit below that value and 50 percent sit above.
• The mean value—975 K€ describes the point that is characterized by the smaller distance to the 5,000 simulation outcomes. It matches the base case value here, but this is not a common setting.
• There is a 90 percent certainty that the value is comprised between 495 K€ and 1,484 K€.
• The value is likely comprised between 100 K€ and 1,800 K€.
• The transaction price sits within that range, above the first-order moments. Thus, more than 50 percent of possible values are below the negotiated price.
• The distribution of values follows a log-normal law that indicates the dispersion around the mean and median, and thereby, the risk associated with SU.

Once the transaction price is settled, the ownership of the patent is transferred to IG and the following questions are raised: can IG recognize the patents as intangible assets? If yes, at what value? Most financial valuers are not accountants. Only about 30 percent of them are. In the studied case, a discussion between IG’s management, the valuer, and IG’s CPA shed light on the fact that the patents could be recognized through the Purchase Price Allocation (PPA), a process that allows the allocation of the goodwill to identifiable intangible assets and that is described in IFRS 3. As a reminder, goodwill is the excess price paid by the acquirer in a business combination operation, which represents the spread between the market price for SU (here the negotiated price) and the book value of SU’s assets. Notably, as the patents developed by SU were internally generated, and since the pooling of interest model of business combination is no longer applicable, the existing patents in SU could not be recognized by SU and were not displayed in its balance sheet. Thus, the PPA acts as a visibilization process for SU’s IP.

The value recorded can in no manner be 975 K€, the result of the DCF base case estimation, the mean or the median of the distribution of values, which are all lower values than the transaction price. In IFRS, the only accepted certainty is the transaction price, hence 1,100 K€. Figure 3 illustrates three possible processes of Purchase Price Allocation applicable when the paid price is higher (cases 1 and 2) or lower (case 3) than the expected benefits. Notably, due to some standard dispositions (for example IFRS3 §34-36) which ignore uncertainties, practices concentrate on case 2. In the present case, GI kept the 80 percent coefficient to assess the value of patents. Hence, it was appropriate to conduct a backward induction, which consists of i) valuing all identifiable assets to which the goodwill can be allocated, ii) likely including residual goodwill (case 2), iii) estimating their respective weights in comparison with the total value, and iv) allocating the weight to the indication of value of each identifiable intangible asset (cases 1 and 3).

4.1 Revaluation at the End of the Year N

Just after the purchase is settled, SU experiences some difficulties that are not related to the conduct of its business, but rather to a pandemic. The sanitary crisis slows down SU’s activity at the local and international levels. Moreover, the key person—the former CEO—who was under contract, became unavailable due to illness. In consequence, the effective turnover of year N is 40 percent lower than the forecasted turnover. Because this type of uncertainty is unprecedented, the business plan is revised with the level of activity of the year. In the absence of benchmarks or history, the slowdown is extended to the whole business plan. Unsurprisingly, this adjustment has a substantial impact on the present value of the FCF—now projected from year N +1 to year N+12. The revised indication of value is 149 K€, and the value of the patents drops to 119 K€, a value inferior to the patents’ carrying amount (880—73.3 K€). From an accounting perspective, this is clearly an indication that the asset may be impaired.

As stated above, since the patents have a finite life (12 years), it is required that they are amortized. Amortization consists of recognizing a loss of value at the end of every year during the lifetime of an intangible asset. When tangible assets are concerned, this loss of value is called depreciation. Conceptually, amortization captures the obsolescence of the assets, and their wearing out. However, it is also a way to allocate the purchase price of the asset along its lifetime to figure a purchase expense during the years when the asset is operational. This allows the reporting entity to comply with the matching principle, an accounting principle by which expenses should be reported in the same period in which the corresponding revenues are earned. In our case study, the amortization is applied on a straight-line basis, and the annual amortization is thus 880/12 = 73.3 K€. This results in the following net book value of patents at the end of year N: 880—73.3 = 806.7 K€, where the patents are amortized over a semester. This creates a situation where the revised value of the patents derived from the revised business plan is now inferior to the net book value.

If the reasoning is solely drawn on the base case, IG shall record a loss in value of 806.7—687.5 = 119.2 K€. However, this approach supposes that the future is known and that, in the present case, activity growth over the next 11 years will be equal to a constant activity growth reduced to 1 percent, below the initial and quite prudent forecasts (3 percent). In a period when the whole world is in lockdown and the unemployment rate is hitting a maximum in many countries, there exists no basis for a more optimistic benchmark. The result of the new simulation based on the last observed events is quite dramatic: the total distribution of values stands below the purchase price (Figure 4) and the value of the patents is comprised between -450 and 500 K€. The operation now looks like a bad deal, as all possible values are now inferior to the purchase price.

The distribution shapes can be analyzed thanks to two criteria: i) their skewness and ii) their kurtosis. The skewness measures the asymmetry of the probability distribution. In the initial and revised cases, they look quite similar. The initial distribution of values is characterized by a small positive skew, i.e., a slightly higher concentration of the distribution on the left side of the figure. A sign of this skewness can be read in Figure 2, where the mean appears superior to the median. Thereby, the effective occurrence of small values, below the mean, is slightly more probable than the occurrence of values higher than the mean. The kurtosis is a measure of the tailedness; a higher kurtosis indicates a greater probability of the occurrence of outliers. In the present case, the kurtosis is positive and indicates a leptokurtic distribution, which is typical to the log-normal distribution, the best fit for the model.

The right panel in Figure 4 shows the results of a sensitivity analysis, automatically computed by the software. It indicated that the drop in activity is responsible for most of the change in value. The second factor to which SU’s value is sensitive is the management of the Working Capital Requirement (WCR). The operating expenses (OPEX) are the third factor of sensitivity; this is because they are fixed costs. Finally, the predicted inflation also affects the value, but in a less important manner.

4.2 To Impair or Not To Impair?

Subsequently, the accounting issue is raised: Should IG record a loss of value due to a pandemic? The issue is raised because, on the one hand, the pandemic has significantly modified the short-term historical data that populates the business plan, and on the other hand, adopting the revised figures of Year N as a new permanent benchmark seems not to be a reliable and defendable assumption.

The standard setter provides limited guidelines on how to impair in highly uncertain times. In October 2020, anticipating preparers’ challenges, IFRS published a brief dedicated to the issue² entitled “Applying IFRS Standards in YN—Impact of COVID-19,” a situation described as one of “heightened uncertainty.” Following a survey that revealed that the impairment of non-financial assets was the second-largest challenge for companies and preparers, after the measurement and impairment of financial assets, some principles were drawn:

• Users of financial statements expect entities to base their estimates in financial statements on assumptions consistent with management’s expectations of business performance and the operating environment at the reporting date.
• These assumptions should be developed using reasonable and supportable information available to management.
• Users expect transparency into the key assumptions used. Entities should provide unbiased and clear information about the key assumptions.
• Reporting information in this manner allows users to understand the extent to which the financial results can help them in making predictions about the future.

The international standard setter also points to the fact that heightened uncertainty is not a reason to freeze estimates at pre-COVID-19 period amounts. As heightened uncertainty circumstances are characterized by a difficult and rapidly changing environment, estimates need to be periodically updated.

The management is expected to provide robust processes and appropriate evidence for the used estimates, including the prediction of a possible way out of the pandemic in both its pace and its timing. Hence, in heightened uncertainty, the disclosures are of tremendous importance and should be i) based on the best available, reasonable, and supportable information; ii) consistent with management’s rationale for the entity’s operations, prospects, and viability; and iii) derived from a thorough and well-governed process with appropriate oversight from the audit committee and the board of directors. The disclosure should contain all relevant information such as key assumptions used, changes in those assumptions since the last reporting
period; the impact of changes in assumptions on the amounts in the financial statements, and the sensitivities to key assumptions. The international standard setter insists on the necessity to produce clear and transparent disclosure and make the context explicit.

Those principles are applied in the examined case study as i) the financial model is based on management’s expectations; ii) the participants in the modeling and the impairment decision use reasonable and supportable information; iii) assumptions are fully transparent; and iv) the initial and revised valuation reports are comprehensive. As recommended, in the case study the initial business plan was not frozen but transparently revised. Notably, the initial financial modeling was kept alike, and only the assumptions about the amplitude and levels of the inputs were changed. In other words, the spreadsheet structure was maintained; it was actualized with new figures and all updates were explained. The valuation report includes a sensitivity analysis in the dual form of a sensitivity chart and a “tornado” analysis (untabulated). In our case study, there was no audit committee, however, there was an ongoing discussion with the auditors.

Notably, the standard setter’s provisions do not assist IG management in deciding whether they should impair the intangible assets or not. They rather indicate how detailed the narratives around the decision should be. Hence, at the end of N, there are two possible options for IG (Table 1). The first option consists of taking the pandemic period as a short one and discarding the figures of YN as those describing a transient phenomenon. Nevertheless, a loss of value is recognized through the linear amortization. The second option consists of recognizing a permanent change and thus a loss of value. The base for the impairment calculation is the revaluation, to which the 80 percent coefficient is applied. Thus, the potential impairment is equal to 687.5 K€. The options result in different financial statements.

The decision to impair is made on an interpretation of the left panel of Figure 4. If the manager believes that the pandemic is a non-durable phenomenon, then the distribution of values should move back to that of the base case, where the purchase of SU and its patents was standing below their expected future benefits. If the pandemic is expected to last for about a decade, the distribution of values could look like the left distribution on the left panel. Because governmental responses are strong and vaccines are expected to slow down the pandemic, thereby allowing the return to a “normal” life, the management expectations are rather oriented towards the initial distribution. Hence, the decision not to impair is made.

4.3 Revaluation at the End of Year N+1

The transient nature of the pandemic is questioned again in N+1, as the company loses another 10 percent of its projected turnover. Despite the increase in vaccinations, it is still not possible to plan a return to a normal level of economic activity. In that context, the business plan is again revised and the projections are designed to maintain the N+1 level of activity and indicate a present value of FCF of €-14k, corresponding to a nil patents value. A new simulation is run where most of the distribution outcomes appear to be negative. With such a dramatic change, the issue of impairment is raised again. In theory, there are four possible situations at the end of N+1 (Figure 5), depending on whether an impairment occurred at the end of the year N and resulting in four completely different accounting representations at the end of Y N+1 (bottom line of Figure 5 and Table 2).

Although IG did not impair the patent value in N, a new nil value in N+1 appears completely irrelevant to IG’s management. Moreover, they are starting to see evidence that their activity is starting again and the return to a normal activity level seems more likely in their sector. Thus, management decides not to impair the patents’ value. Notably, we observe (Table 2) that an impairment in the second year (case 1.2) dramatically cancels the patent value, hence the total net book value that was left on the balance sheet. This also affects the net income with a total loss on the value of 806.7 K€ to be recognized at the end of Y N+1.

4.3 Signs of an End of a Sanitary Crisis

At the end of N+2, the pandemic is coming to its end, SU’s and IG’s order books are filling up, and SU’s turnover is up by 45 percent. This, of course, implies a new revision of the business plan, with more positive perspectives. Notably, the current level of activity still results in revenue that is 37 percent down compared to the initial forecasts. Nevertheless, the projections indicate a present value of FCF in N+2 equal to 617 K€, which implies a value of 493.7 K€ for the patents. The initial forecast would have led to a net book value of patent equal to 660.1 k€ in N+2, (i.e., 880—3*73.3). This is because after two and a half years of patent usage, the cumulated depreciation is 841.7 K€, and the total loss of value, amortization included, equals the value of SU. Hence, the current discounted value of the patents is now superior to its carrying amount. In such a case, the accounting standards are clear: no impairment shall be accounted for.

The case study illustrates a problem in IP management when high uncertainty strikes: the representation of IP value in the financial statements and in compliance with financial reporting regulations. Commonly used valuation tools show their limits as the information uncertainty (Roychowdhury et al., 2019) makes it impossible to produce reliable PFI. Research and organization theories have failed to address such issues in the past century, favoring the depiction and scrutinization of contractual relationships within a closed-end representation of the firm and the reduction of the organization to an agency. With such a focus on an improbable situation that assumes that external factors are under control, clear decision-making rules
are lacking. This is a direct consequence of the general lack of interest in studying decision-making in complex situations on the one hand, and the strong belief that it is possible to “engineer” the decision-making process on the other. Those two causes have resulted in little attention being paid to the dynamic processes at play, which cannot be properly forecasted but need to be accounted for. It is therefore not surprising that many scholars blame the long delays needed by companies to recognize the loss of value.

The case also suggests that an excess of periodical revisions and the benchmarking results of scarce phenomena leads to overreaction, volatility in the balance sheet values, volatility in the P&L, and costly accounting recordings: in the examined case, a strict application of the impairment test would have led to two impairments and one impairment reversal. Patience when facing unpredictable natural events can become more effective and less costly than an immediate adaptation, especially when the usage cases have not disappeared. Finally, the process highlights the contribution of teamwork, a condition for conducting a reliable valuation. In the examined case, four teams were gathered to build the analyses: management, auditors, an IP attorney, and an independent valuer.

The article illustrates that although it is not possible to accurately predict the future benefits generated by an IP asset, sophisticated valuation methods, and specifically simulations that capture risks and uncertainties in input values, perform better than the usual deterministic methods such as comparables or plain DCFs. The results of simulation approaches provide a better representation of the diversity of potential future outcomes. They also require a robust financial model that can be easily updated and adjusted as the context quickly evolves. The whole process is fully compliant with accounting rules. Multiple outcomes and multiple distributions may not lead to direct obvious decision-making and even less to an exact value, but they provide a less biased estimation in such a way that they better support decision-making in heightened uncertainty, whether uncertainty is transitory or permanent. ■

1. In some jurisdictions such as the U.S., internally originated IP assets are not represented on the balance sheet; only externally generated IP assets that have been acquired can be
represented.
2. https://www.ifrs.org/content/dam/ifrs/news/2020/inbrief-covid19-oct2020.pdf. See References.

IASB (2004a). Business Combinations. International Financial Reporting Standard 3. London, UK: IASB.
IASB (2004b). Impairment of Assets. International Accounting Standard 36. London, UK: IASB.
IASB (2014). Intangible Assets. International Accounting Standard 38. London, UK: IASB.
IASB (2014). Request for information: Post-implementation Review of IFRS 3 Business Combination, January.
IASB (2023). Staff paper 18A, Business Combinations—Disclosures, Goodwill and Impairment Effectiveness of impairment test—analysis of suggestions.
IFRS (2020). Applying IFRS standards in 2020—the impact of Covid 19. https://www.ifrs.org/content/dam/ifrs/news/2020/inbrief-covid19-oct2020.pdf
Roychowdhury, S.; Shroff, N.; & Verdi, R.S. (2019). “The Effects Of Financial Reporting And Disclosure On Corporate Investment- A Review.” Journal of Accounting & Economics, 68(2/3).