News Corporation is far from convinced of the merits of the standard [IAS 38J. A
ID: 2486622 • Letter: N
Question
News Corporation is far from convinced of the merits of the standard [IAS 38J. At the Australian division, News Limited, finance director and deputy chief executive Peter McCourt says: 'The reason you get standards like that is that they are prepared by people who are not really responsible to anybody. The business community gains nothing from writing off the value of intangibles over a limited time frame. If the standard comes in, the market will simply add back the amortisation.' McCourt believes the standard penalises companies that are acquisitive when it comes to intangible assets. He can see no reason for the existence of the standard. 'Who is it aimed at, who is being better informed by taking that charge? I don't think it gets you anywhere.' He is not alone in getting worked up about preventing accountants from minimising the values placed on intangibles. Even the legendary Berkshire Hathaway chief Warren Buffett has strong views on the issue. He has been quoted as saying: 'Amortisation of intangibles is rubbish. It distorts true cashflows and thus economic reality. For example, the economic earnings of Disney are much greater than reported earnings. Accounting is pushing people to do things that are nuts.' These comments were made before the latest revisions to AASB 138. Comment on whether the current AASB 138 has resolved the issues raised in this article. There are 4 key issues in the article. Marks are only allocated to these 4 issues.Explanation / Answer
Answer:
The key issues in the IAS 38 have been ressolved by AASB 138 to a great extent. The issue of amortisation of intangible assets is very well addressed and it has been made upto the Company to determine the useful life of the intangible assets and also gave an option of intangible assets with infinite life which need not be amortised. Thus, the limited time period of intangible assets issue is also ressolved. The issue of distorted cash flow reporting has not been resolved for the assets having finite useful life. However, the disclosure requirements do help in analysing the true cash flows.