Accounting Groups Differ on Tracking Intangible Assets in AI Era

The US accounting standard-setter’s inquiry into whether and how it could update rules for reporting value-driving intangible assets like copyrights and patents that are often missing from corporate balance sheets drew a flood of divergent responses.

Differences among more than 40 accounting firms, professional associations, pharmaceutical companies, and others that submitted feedback in response to the Financial Accounting Standards Board’s preliminary research began with whether intangibles-related guidance should be revised in the first place. Respondents also varied on how to carry rules written for a manufacturing-based economy over to the current era dominated by artificial intelligence.

The value of corporate intangible assets hit an all-time-high globally of $80 trillion in 2024, spurred by advances in AI and other technologies, according to research by the World Intellectual Property Organization and Brand Finance. WIPO has also found US investments in intangibles made up nearly twice the share of gross domestic product than those in tangible assets in 2023.

FASB first addressed reporting for intangibles in 1973 with guidance defining research and development. Today, separate rules cover how to recognize and measure intangibles, in addition to industry-specific guidance for areas like film production costs.

FASB has initiated projects on emerging types of intangibles, such as crypto assets and environmental credits, but it’s now weighing a broader overhaul.

While Deloitte & Touche LLP was among those saying there isn’t a pressing need to update the current guidance, others, such as Grant Thornton LLP, encouraged change.

“The possible loss of relevance of financial statements is a serious issue,” the International Valuation Standards Council, a standard-setter for valuation professionals, wrote in its letter advocating for revising the rules.

‘Significant Gap’

While intangibles that companies generate internally, such as trademarks, can be “significant assets,” they often aren’t reflected on balance sheets until a firm is acquired, a committee within the American Institute of Certified Public Accountants said.

Instead, these intangibles typically show up as expenses, from staff salaries to R&D costs.

This creates a “significant gap” in reporting between companies growing organically and those that grow through acquisition, the committee’s letter said.

Investors have pushed for FASB to fill this gap with more details on core assets that drive revenue.

Global standard-setters are also grappling with the accounting treatment of intangibles. The International Accounting Standards Board decided last month to update its framework, focusing on giving investors more useful information.

AI Considerations

Accounting for research and development costs that often accompany the creation of intangibles is another point of contention. While KPMG LLP and Eli Lilly and Co. said the existing definitions of R&D are sufficiently comprehensive, other firms, including Crowe LLP, pushed FASB to update them to reflect new development methods and technologies such as AI.

Current rules are based on the idea that R&D costs should be “immediately expensed” because at the time they’re incurred “the future benefits are at best uncertain,” according to the invitation to comment FASB posted in December.

Crowe pointed to agile development, a practice in which programmers make iterative rather than sequential software updates. FASB recently advanced a software accounting project with guidance neutral toward various development models.

BDO USA PC recommended clarifying how costs incurred for evolving technologies should be reported.

It’s unclear whether costs to train large language models incorporated into AI tools are R&D costs or should be accounted for under other guidance, for instance, BDO USA said.

Aligning Rules

Crowe, Grant Thornton, and others also urged greater consistency in guidance—particularly related to accounting for intangibles obtained as part of business combinations or asset acquisitions.

While both situations involve a transaction, they’re subject to different recognition thresholds.

Separately identifiable intangibles acquired in a business combination are only recognized when they meet certain criteria that don’t apply if the intangibles are obtained in an asset acquisition. This generally leads to more intangibles being eligible for recognition in an asset acquisition, Crowe said.

Coordinating the accounting treatment would create a “consistent, principle-based framework,” a letter from a class of master’s degree students at Kennesaw State University in Georgia said.

Respondents to FASB’s 2021 agenda consultation project suggested the board focus on aligning the accounting for in-process R&D, the invitation to comment said.

Ernst & Young LLP said that while accounting varies depending on the type of transaction, the underlying characteristics of in-process R&D are the same. The differences introduce “unnecessary complexity and cost for preparers,” its letter said.

Some firms pointed FASB to the possible logistical hurdle of aligning recognition guidance.

Advisory firm Riveron acknowledged the “seductive appeal” of a more aligned framework for intangibles reporting but said the project could introduce implementation challenges.

New Disclosures

Like investors, FASB faces a “catch-22 situation,” CFA Institute said.

Without more details about unrecognized intangibles, FASB and investors can’t assess what new approaches may be helpful, the investment professional association’s letter said.

CFA Institute recommended a “disclosure first” approach requiring companies to provide basic information about intangibles to give FASB and investors a starting point.

More than 80% of investment professionals surveyed by CFA Institute agreed that better disclosures related to acquired and internally generated intangibles were needed, the letter said.

Additional disclosures relating to R&D and internally developed intangibles could include information such as project time lines and expected project phase completion dates, according to a Florida Institute of CPAs committee’s letter.

PricewaterhouseCoopers LLP said, however, said it received mixed feedback on the usefulness of additional disclosures. It would be difficult to determine incremental disclosures that are relevant across assets in the scope of the guidance, according to PwC’s letter.

The standard-setter looks forward to discussing all stakeholder feedback at a future meeting to assess potential standard-setting opportunities, according to a statement from FASB spokesperson Christine Klimek.