Accounting for Intangible Assets in Technology Companies: Recognition, Measurement, Disclosure and Value Relevance
TL;DR
It is argued that the current accounting requirement as contained in IAS38 creates useful incentives toward recognition in this area, but fails to account completely for the economic activities of fast –changing tech businesses, and recommend greater disclosures of: in- house intellectual capital, R&D expenses, development activity of computer software, and key significant valuation assumptions that are used to estimate asset values.
Abstract
Technology companies draw a significant share of their economic value from soft, in the form of software, patents and copyrights, licenses, trademarks, customers, databases, custom algorithms, in–house know–how, R & D and self–created technology. The established accounting rules are not always sufficient in capturing the value of these assets as a lot of internally–created intangibles are expensed than capitalized in the financial statements. This article investigates the accounting treatment of intangibles for technology firms, including its recognition, measurement, and subsequent accounting treatment, impairment testing, disclosures, and value relevance. The research employs an ex-post facto and suggests constructing a panel of data, comprising technology focused firm for the period 2015 to 2025. The intensity of intangibles, research and development (R&D) and spend on internally developed software are investigated in relationship with firm value and overall financial performance. Sample regression results, for example, show a tendency for the intangible- asset intensity to correlate positively with firms value (Tobin’s Q). Nevertheless excessive expensing of research and development expenses reduce the accounting size of the asset base, causing a rift between value and market. Evidence recently examined for European listed firms demonstrate an affirmative association between intangible assets and firm values of the companies, and research confirms that the intensity of intangible assets shows a positive relationship (statistically significant) with the companies’ Tobin’s Q (Oh & Kim, 2025). We contend that the current accounting requirement as contained in IAS38 creates useful incentives toward recognition in this area, but fails to account completely for the economic activities of fast –changing tech businesses, and recommend greater disclosures of: in- house intellectual capital, R&D expenses, development activity of computer software, and key significant valuation assumptions that are used to estimate asset values.