Recognition and disclosure of intangibles under International Financial Reporting Standards

The current International Financial Reporting Standard for intangibles has been subject to recent criticism, with concerns of lack of comparability between acquired and internally generated intangibles and limited disclosure of unrecognized intangibles. This study aims to inform the International Accounting Standards Board of the extent of these issues, by focusing on trends in recognition and disclosure of intangible items in firms that engage in acquisitions (acquisitive) and those that do not (non-acquisitive). Our sample is based on firms listed in the United Kingdom between 2017 and 2022. Disclosure is captured through a count of relevant keywords in the financial statements and accompanying notes, distinguishing between contractual, non-contractual and broad intangible items. We find that recognized intangible assets are on average 32% of total assets in acquisitive firms but only 9% in non-acquisitive firms. In contrast, disclosure of non-contractual intangibles, which include internally generated intangibles, is higher in non-acquisitive firms, implying they may supplement non-recognition with higher disclosure of intangible information.

We further examine the value relevance of recognized and disclosed intangibles and find that disclosure reduces the value relevance of earnings in acquisitive firms; and increases the value relevance of book value more so in non-acquisitive firms. Overall, our evidence points to diversity in recognition and disclosure in line with recent criticism of the intangible standard and supports the need for a revisit by standard setters.