Background:
The Institute of Chartered Accountants of India (ICAI) plays a pivotal role in upholding the integrity and transparency of financial reporting within the country. ICAI routinely monitors financial reporting practices to detect any inconsistencies or failures to comply with accounting standards. Listed below are several identified deficiencies in respect of reporting as per Ind AS 38 “Intangible Assets”.
Shortcomings: IND AS 38 “Intangible Assets”
| S. No. | Observation(s) | Remarks |
| 1. | Companies does not segregate the intangible assets with finite useful lives and with indefinite useful lives. | As per Para 88 of Ind AS 38 an entity shall assess whether the useful life of an intangible asset is finite or indefinite and, if finite, the length of, or number of production or similar units constituting, that useful life. An intangible asset is regarded as having an indefinite useful life when, based on an analysis of all of the relevant factors, there is no foreseeable limit to the period over which the asset is expected to generate net cash inflows for the entity. Further, as per Para 118(a) of Ind AS 38 an entity shall disclose, for each class of intangible assets, whether the useful lives are indefinite or finite and, if finite, the useful lives or the amortization rates used. |
| 2. | Companies show Intangible Assets under Development as a part of “others” under other intangible assets line item. | As per schedule III Intangible Assets under Development are disclosed separately on the face of the balance sheet as follows: ASSETS 1.Non-current assets (f) Intangible assets under development |
| 3. | Companies does not make distinction between “research” and “development” phases while drafting the accounting policies. | As per Paragraph 54 of IND AS 38: ‘No intangible asset arising from research (or from the research phase of an internal project) shall be recognized. Expenditure on research (or on the research phase of an internal project) shall be recognized as an expense when it is incurred.’ |
| SW Point of View: The above observations may seem to be generic in nature but hold importance in reporting. Companies must proactively address discrepancies to ensure accurate reporting in line with standards, safeguarding transparency and credibility. |
Aditya Rawat, Audit Associate, SW
