Issue to be investigated: Accounting for Brand Names

Accounting for intangible assets is one of the most controversial issues in financial reporting. For instance, in a speech by Hans Hoogervorst, Chair of the International Accounting Standards Board (IASB), it is acknowledged that IFRS financial statements often fail to capture the true value of intangibles on the balance sheet.

“Measurement and outcome uncertainty of intangibles are, and will remain, formidable obstacles for any efforts to quantify them reliably. Even when intangibles have undeniable value, their existence can be ephemeral. Just think about the fate of some mobile phone companies in the recent past. Their seemingly unassailable technologies were destroyed almost overnight… For these reasons, the narrative of corporate reports—rather than the financial statements—will most likely remain the best place to deal with intangibles.”

Accordingly, the IASB has decided to follow a ‘keep calm and carry on’ approach in regards to Intangible Assets. Nevertheless, it recently initiated a project on Goodwill and Impairment.

You have recently been appointed as a graduate accountant in a company listed on the Australian Securities Exchange Top 200 (ASX200) Woolworths Group, and are currently reporting to the Chief Financial Officer (CFO). The CFO has been asked to update the Board of Directors regarding the reporting of its Brand Names and the company’s position on the relevant accounting standard.

You are to research and comment on these issues and present your findings as follows:

A business report to update the CFO and the board of directors on the reporting of Brand Names which will serve as a foundation for the company’s future engagement with the IASB and the AASB.

Your business report needs to be concise and informative. In preparing your report, you should investigate a range of issues:

(i) Provide a description of the reporting of Brand Names in the annual report of Woolworths Group (you need to refer to the 2020 annual report for Woolworths Group). In addition, based on your understanding of Woolworths Group’s operations, describe the Intangible Assets that the company is prevented from recognising based on the current standard.

(ii) Critically evaluate the current accounting treatment for the recognition and measurement of Brand Names in AASB 138 Intangible Assets. Consider this in light of the objective of general purpose financial reporting, the qualitative characteristics of useful financial information, and the notion of conservative accounting. Support your discussion using academic journal articles, and where relevant high quality professional articles and newspapers. Also support your discussion using one other theory covered in this unit (in addition to the conceptual framework).

(iii) Provide a recommendation on the future direction the IASB and the AASB should take in regards to the reporting of Brand Names, which your CFO can take to the Board of Directors. Support your recommendation with reference to academic journal articles and a theory covered in this unit.