AUDIT OF INTANGIBLE ASSETS

By Prof. Anita B. Catolico

INTANGIBLES
 Include patents, leaseholds, copyrights, formulas,
organizational costs, franchise fees, and goodwill
acquired in a business combination.
 Since intangible assets are lacking in physical substance,
their value lies in the rights and economic advantages
afforded in their ownership.
AUDIT OBJECTIVES
1. Determine that intangibles exist and are represented by
contractual rights, privileges or earning power owned by
the company.
2. Determine that all transactions are properly recorded.
3. Determine that intangibles are owned by the company.
4. Determine that intangibles are stated at cost less
amortization.
5. Presentation and disclosures are in accordance with
PAS/PFRS.
AUDIT PROCEDURES
 1. Obtain an analysis of ledger accounts for intangibles.
 2. Examine documentation.

 3. Vouch additions to or acquisitions during the year.

 4. Evaluate dispositions and write-offs during the year.

 5. Perform analytical procedures.

 6. Evaluate amortization policy and period.

 7. Evaluate FS presentation and disclosure.

AUDIT OF VARIOUS INTANGIBLES
 During the current year the accountant for BTS recorded
numerous transactions in Intangibles.
 Jan. 1 Incorporation fees. P17,500

 Jan. 10 Legal fees for the organization of the company. 7,500

 Jan. 15 Paid for large-scale advertising campaign for the year.
15,000
 Apr. 1 Acquired land for P15,000 and a building for P20,000 to
house the R&D activities. The building has a 20-year life.
35,000
 May 15 Purchased materials exclusively for use in R&D
activities. Of these materials 20% are left at the end of year and
will be used in the same project next year (they have no
alternative use) 15,000
 June 30 Purchased a patent. 10,000
 July 1 Operating loss for first 6 months of the year.
12,000
 Dec. 10 Purchased an experimental machine from an
inventor. The machine is expected to be used for a
particular R&D activity for 2 yrs, after which it will have
no residual value. 12,000
 Dec. 31 Paid employees involved in R&D. 30,000

 Prepare adjusting entries to eliminate intangibles account

and correctly record. Organization costs are amortized
over 5 years and any other intangibles are amortized
over their legal lives.