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2.2Amortisation of Identifiable Intangible AssetsTutticci et al.(1994) indicate that the requirement for identifiable intangible assets to be amortisedwas an issue which received significant attention on the release of ED 49. Coombes, Otto andStokes (1996) also suggest that amortisation of identifiable intangible assets has for sometime beena contentious issue in Australia (see also English, 1990; and Reilly, 1989). Two major issues arisein relation to amortisation of identifiable intangible assets. First, the broad question of whether ornot identifiable intangible assets which have been capitalised should be written off over time, that isamortised, as opposed to carrying them in the balance sheet unamortised indefinitely. It issometimes argued that intangibles such as brands and trademarks, which are receiving continuedsupport from a company, have an unlimited life and should therefore not be subject to anyrequirement to amortise the asset (Ferris & Hall, 1989). While identifiable intangible assets arerequired to be amortised under AAS 4/AASB 1021, Depreciation,4it appears that many companiesdo not comply with these requirements (AAG 5, 1985; Carnegie & Kallio, 1988; Kirkness, 1987;Wines & Ferguson, 1993; Heazlewood & Ryan, 1999)5. Therefore many identifiable intangibleassets are included in the balance sheet indefinitely. By not complying, companies are able to avoid4Accounting Guidance Release AAG 5, Accounting for Intangible Assets (Recognised in Accordance with Statement of Accounting Standards AAS 18 “Accounting for Goodwill”), (issued in 1985 and withdrawn in 1997), and now Accounting Interpretation AI 1, Amortisation of Identifiable Intangible Assets(1999), both clarify this point.5The reason often given for not amortising identifiable intangibles is that they have an indefinite or indeterminate life.4
the impact of amortisation on the profit and loss statement. ED 49 proposed to remove anydiscretion in relation to amortisation of identifiable intangibles that have been recognised in theaccounts. Paragraph .40 explicitly required them, whether purchased or internally developed, to besystematically amortised.The second major issue that arises in relation to amortisation of identifiable intangible assets iswhether a maximum period of amortisation should be set. Reilly (1989) suggests that not setting amaximum amortisation period for identifiable intangible assets allows directors to argue for longeramortisation periods, and therefore to reduce the year to year impact of amortisation. This may alsoprovide an incentive for companies to recognise identifiable intangible assets rather than goodwill,which must be amortised over a maximum period of 20 years.6ED 49 (para. .40) proposed thatidentifiable intangible assets be amortised over the period the benefits from the asset were expectedto arise. It required that this period be finite. Paragraph (xi) suggests that few assets could beexpected to provide benefits in excess of a 20 year period. Detailed disclosures were required if this20 year period was to be exceeded (para. .70(g)).