Intangible Assets: The Backbone of Technology and Life Sciences Organizations

Introduction

Whether you are leading an emerging company or a more mature organization looking for the next stage of growth, chances are you deal with customer contracts, licenses, patents, and trademarks on a daily basis. These are termed intangible assets in the accounting world and are the backbone of technology and life sciences companies. In a sector where transactions are common practice, the purchase of intangible assets is frequently part of the deal. In fact, it is not uncommon for a company to purchase another company for the sole purpose of gaining access to its intangible assets. Correctly accounting for your intangible assets ensures you are presenting the best market value of your organization.

For this reason, it is important to be able to identify which intangible assets can be recognized both inside and outside of a business combination as some costs can be precluded. Whether you report under IFRS or ASPE, the guidance on intangible assets is similar and both are discussed below.

General Recognition Criteria

Intangible assets should be recognized separately from goodwill if it is separable or arises from contractual or other legal rights. Separable means that the assets can be sold, transferred, licensed, rented or exchanged.

For those acquired outside of a business combination, the entity must be able to obtain the future economic benefits flowing from the underlying resource and to restrict the access of others to those benefits. Future economic benefits may include revenue from the sale of products or services, or cost savings.

Examples

The following chart shows which types of costs can be recognized as intangible assets within and outside of a business combination. There are six categories of costs: branding-related costs, contractual costs, customer/sales-related costs, employee-related costs, research-related costs, and technology-related costs. A checkmark indicates that the cost is typically recognized as an intangible asset; whereas, a cross indicates that the cost is not typically recognized as an intangible asset.

This chart is for illustrative purposes, the exact nature and terms of the cost need to be carefully assessed to ensure that the recognition criteria of each standard are met.

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