Checked against the official source:
Intangible assets cannot be counted or inspected, so the audit is built around documents: does the right exist, does it belong to the company and is it reasonably reflected in the books.
What is checked
- Documents confirming rights to the asset
- Whether recognition is justified: are the criteria for recognising an asset met
- How the initial cost was determined
- Determination of useful life and calculation of amortisation
- Indicators of impairment and the need to write the value down
The main question — recognition criteria
A frequent error is capitalising costs that do not meet the asset recognition criteria. Development costs, promotion costs or internally generated items cannot always be reported as an intangible asset; adding them to cost overstates both assets and profit.
Software
The distinction between acquiring rights and obtaining a licence to use requires particular attention. Both the accounting treatment and the way costs are recognised depend on the classification — and an error here is repeated over the entire term of the contract.
Comparison with IFRS (IAS 38)
- recognition criteria: probable future economic benefits and reliable measurement of cost;
- internally generated brands and customer lists are not recognised as assets;
- intangible assets with an indefinite useful life are not amortised but are tested for impairment annually.
Audit procedures
- review of title documents: licences, certificates, software contracts;
- testing the capitalisation of development costs;
- recalculating amortisation and checking useful lives;
- impairment testing where indicators exist.
Check your intangible assets accounting
We will test the basis for recognition and the measurement of intangible assets.
Go to the Voluntary Audit serviceFrequently asked questions
Does the auditor check the market value of an intangible asset?
Valuation is the job of a valuer. The auditor checks whether the amount recorded in the books is reasonable and whether there are indicators of impairment.
Can website or software costs be capitalised?
Only if the recognition criteria are met: probable future economic benefits and reliable measurement of cost (IAS 38).
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