How accounting for intangibles could be changing

By Gary Anders

With a share market capitalisation of more than A$5 trillion, Apple Inc. has been at the cutting edge of technology development for decades.

Its recently launched iPhone 16, for example, has incorporated artificial intelligence (AI) software, marketed as “Apple Intelligence”, that it says draws on personal context to “help you write, express yourself and get things done effortlessly”.

This world-leading technology has the potential to generate billions of dollars in revenue and profit for Apple - but the true value of Apple’s AI won't be on the company’s balance sheet.

While some of the cost of Apple’s AI will be listed among the company’s assets, there would be minimal value, if any, for Apple’s brands, its software, designs, symbols, digital copyrights, trademarks, licences, customer lists or its other intellectual properties (IP). These are all internally generated intangible assets, and they simply don’t count.

Under the international accounting standard IAS 38 Intangible Assets, very few internally generated intangible assets may be recognised in financial statements. That’s largely because, from an accounting perspective, there’s no rigid, universally acceptable formula for reliably measuring them.

 

"Brand strength is essentially a composition of brand awareness and reputation. To identify monetary value, brand strength is combined with the business’s financial size, in the form of revenue forecasts and the impact of the brand within the category."

 

On the other hand, a value can be placed on acquired intangible assets resulting from a business combination such as a takeover or merger.

Moves are now afoot to review whether the current accounting standards covering the recognition of internally generated intangible assets, which were introduced over 20 years ago in 2001, still stack up. After all, the rules came into effect six years before the launch of the first Apple iPhone. The world has moved on a lot since then.

The IASB announced in April 2024 that it was commencing a “comprehensive review” of the accounting requirements for intangible assets, to assess whether IAS 38 remains relevant and continues to reflect current business models.

By all estimates, the review is going to be a long process that’s unlikely to reach firm conclusions for many years.

Shaun Steenkamp CPA, a member of CPA Australia’s Reporting and Assurance Centre of Excellence, says the current rules were set at a time when most corporates didn’t have many intangible assets to worry about, because they hadn’t developed a lot of their own technology or software.

Steenkamp says a key challenge for the IASB in its accounting standards review will be determining an appropriate valuation methodology and subsequent accounting requirements for companies to apply to intangibles such as brands, to have them recognised in their financial accounts.

“How do you recognise in the profit and loss if you say we’ve expanded globally, brand recognition is now higher, and we now revalue our brand up by 50 per cent? Does that mean that your profit and loss suddenly improves significantly because you’ve revalued your brand?”

On the other side of the coin, what happens when a brand suffers significant reputational issues and it needs to be devalued? Does a company recognise the loss in the P&L?

Steenkamp says there are also issues for companies that grow organically and have their own set of intangible assets, like AI.

“In some respects, the organisations that develop these things are currently at a disadvantage. They’ve got this great asset that they can’t recognise in their financial statements, which could be recognised indirectly if they were to sell their business to someone else.

“[In that case] the buyer would be able to have the same asset sitting there and reflected on their balance sheet as part of their goodwill.”

A CPA Australia research paper published in 2024 titled The horizons of financial reporting – Part 2: Investor perspectives and measurement uncertainty concluded that investors support expanded reporting of intangible assets.

This includes wider recognition of intangible assets in general-purpose financial statements, provided that standardised (i.e. comparable and auditable) measurement techniques can be established and transparently communicated via note disclosures.

“A central debate about how to communicate information to investors about intangible assets is whether this is communication best achieved through recognition and measurement or note disclosure,” the paper found.

“This is particularly relevant in the context of internally generated intangible assets, which (aside from some limited exceptions, such as development costs) are not generally recognised in an entity’s statement of financial position, in part because they do not have a cost that is reliably measurable given they do not result from an exchange transaction.”

CPA Australia found that with appropriate scope, an accounting standard mandating an expansion to the recognition of intangibles could enhance the relevance of general-purpose financial statements to investors.

 

"How do you recognise in the profit and loss if you say we’ve expanded globally, brand recognition is now higher, and we now revalue our brand up by 50 per cent? Does that mean that your profit and loss suddenly improves significantly because you’ve revalued your brand?"

 

“While policymakers are moving in the right direction, several issues require deeper consideration. For intangibles, policymakers could consider further disentangling recognition and measurement.”

Ram Subramanian, CPA Australia’s financial reporting lead, says there is a huge challenge in putting a correct value on certain intangible assets, including brands.

“Of course, when you are looking at the buying and selling of businesses, people do value them. So, if you are selling a business which includes a brand value associated with it, the buyer will come to a value somehow, and valuation experts do have techniques that they use to value brands.

“Financial reporting inherently has boundaries to it,” Subramanian says. “The moment you start pushing against the edges, it starts becoming more and more difficult. And that’s exactly where intangibles are, because it is hitting those boundaries and trying to go beyond what financial reporting has traditionally done.”

Mark Crowe is the Australian managing director of global brand valuation consultancy Brand Finance, which specialises in valuing intangible assets, especially brands.

He says that, based on Brand Finance’s calculations, Australian companies are currently holding A$1.4 trillion in intangible assets, of which A$430 billion is bound up in brand values.

“They’re compelling numbers in terms of measuring, understanding and managing that value and its impact on the Australian economy,” Crowe says.

Placing a value on a brand is far from straightforward. Crowe explains that Brand Finance looks at a range of measures, including the market strength of a brand against its competitors, customers and stakeholder perceptions of the brand, and its performance in financial terms, to identify how much the brand is contributing to the revenue of the business.

Among other things, company brands can be heavily influenced by reputational issues that can arise for a range of reasons.

Social media channels can have a major positive or negative impact on the sales of company products, easily enhancing or devaluing brands. Meanwhile, environmental, social and governance issues - some of which can lead to regulatory actions and litigation – can also have significant ramifications for the external reputation of company brands (not to mention major financial consequences).

“Brand strength is essentially a composition of brand awareness and reputation. To identify monetary value, brand strength is combined with the business’s financial size, in the form of revenue forecasts and the impact of the brand within the category,” Crowe says.

“This converts a per-purchase brand impact to a total brand impact for the business. This can then be forecasted, and the forecasts valued to create a present value. Our analysis demonstrates there’s strong correlation between the strength of a brand and the market share it enjoys.”

One valuation methodology applied by Brand Finance is known as “royalty relief ”, which calculates what a company would hypothetically have to pay to use its own brand under a royalty or licensing arrangement with a third party.

“We look at actual royalty rate agreements that operate in the relevant sector. A stronger brand is always going to attract a higher fee in terms of licensing it or paying a royalty for it,” Crowe notes.

“In sectors where you have highly branded goods, such as retail luxury goods, you tend to attract a higher royalty because the impact of the brand is much higher in those sectors as opposed to say, mining, where that’s obviously a very highly commoditised industry.”

Crowe says brand valuations change on an ongoing basis and can be impacted positively or negatively for a range of reasons, including market and economic factors.

“The rigour and the analysis that goes into those valuations today is very much grounded in commercial reality, is evidence based and very defensible.”

Intangible assets are any identifiable non-physical, non-monetary assets a company holds. International accounting standard IAS 38 outlines the accounting treatment for intangible assets by specifying criteria for recognising and measuring them.

It stipulates that separable intangible assets, such as those that have been acquired, can be listed in company accounts at their cost value if the conditions set out in IAS 38 are met.

However, internally generated intangible assets such as brands, mastheads, publishing titles and customer lists are not recognised as intangible assets because it is often difficult to distinguish from the cost of maintaining or enhancing the entity’s business as a whole.

Australia's top 10 brands

Brand Finance has just released its 2025 list of Australia’s most valuable brands. The table below compares the latest top 10 brands with the top 10 brands of a decade ago. Note that all figures are in Australian dollars.

_{Source: Australia 100 2025 report and data from Brand Finance}