The Impact Of IFRS Framework On Reporting For Intangible Assets: A Case Study On Wesfarmers Ltd

Overview of IFRS Framework

The main purpose of this assessment is to analyze the impact of IFRS framework for the purpose of meeting the reporting requirements of the business. The assessment will be considering reporting for intangibles assets for a company which is Wesfarmer ltd which operates in Australia.  The assessment will also be considering review of two articles for the purpose of ensuring the overall impact on the financial reporting work is clearly established. In addition to this, the assessment will be considering accounting standards which are related to AASB 138 and AASB 136.

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International Framework Reporting Standards are international standards which are introduced in order to bring about a universality in the accounting practices which are followed by companies in Australia. IFRS framework was introduced in 2005 and implemented in the same year in Australia. The overall impact of the implementation has far reaching results as it brings about both positive and negative impact on the reporting framework (Saidu& Dauda, 2014).In the case of implementation of AASB 138 which is related to intangible assets of the business.

The impact of intangible assets can be judged by the analysis of article which is provided in the question. One of the article states the impact of implementation of the new accounting standards which are related to intangible assets of the business deals with the reaction of different businesses on the implementation of the new accounting framework (Jermakowicz, Reinstein&Churyk, 2014). The article states that the with the introduction of IFRS framework has resulted in valuing the intangible assets at cost which in turn has resulted in the reduction of the assets of the business significantly(Yao, Percy & Hu,2015). The implementation will force the businesses to write down the values of the intangible assets of the business which will be including assets such as patents, trademarks licenses etc. In certain big companies, the overall value of intangibles assets was above $ 40 to $ 50 billion before the implementations of the new accounting framework in the business.

As per Para 21 of AASB 138, an intangible asset of a business is recognized on if the following provisions are satisfied:

  • It is probable that the future expected benefits which are associated with the assets will be flowing to the business as expected.
  • The cost of the assets can be reliably measured.

As per para 24 of AASB 138, an intangible asset of a business is to be valued at cost initially (Steenkamp & Steenkamp, 2016). The reduction in the intangible assets of the business will be writing the value of the assets of the business as there is no solid or liquid market for judging the value of intangible assets of the business (Kung et al., 2013). The above provision needs to be followed by companies in Australia in measuring and recognizing intangible assets of the business. In addition to this, the companies also need to follow provisions for impairment of assets of the business as stated in ASSB 136 (Bepari, Rahman &Mollik, 2014). As per para 10 of AASB 138, companies need to test assets which have indefinite life or intangibles assets so that any deduction in the value of asset or impairment loss can be recognized (Bond, Govendir& Wells, 2016). The impairment test will be done by making comparison of assets recoverable amount with that of carrying amount. In addition to this, there is a provision that in case an intangible asset is recognized in current year than the same is to be tested before the end of the current annual period.

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The Impact of Implementation of AASB 138 on Intangible Assets

The negative impacts which are can be identified due to the implementation of IFRS framework in on a business is mainly related to the cutting down of profits of the business and also the total assets of the business. As the provisions of AASB 138, requires businesses to record intangible assets at cost initially, the total assets of a company especially a company which have a high percentage of intellectual property have effectively reduced. As per the articles which are provided in the assessment, major companies such as Coca-Cola Amatil, Foster ltd. In addition to this, fall in the total assets of the business will affect presentability of the financial statements of the business (Ji, 2013). In addition to this, the fall in the value of the assets will affect the ability of the business to procure funds from the capital market. Moreover, it is also not certain whether the implementation of the accounting standard will be bringing better quality of information and disclosure for the same.

The Australian accounting standard board AASB 138 requires specifying the disclosures about intangible assets and the amount at which they are being carried. Organizations complying with this standard are not required to write down their intangible assets if they are carried or acquired at costs (Garg, 2017). In event of internal revaluation, the amounts by which the assets have been revalued have to be written down.

The intangible assets that have been acquired by Wesfarmers Limited are measured by recognizing it initially at cost. Intangible assets cost at the acquisition date that has been gained in a business combination is measured at their fair value. After the assets are recognized initially, intangible assets are determined at cost by deducting impairment loss and amortization. Amortization of intangible assets having finite lives is done over their useful lives on a straight line basis (Steenkamp & Steenkamp, 2016). Such assets are impaired when there is any indication of impairment. Intangible assets having indistinct lives on other hand are hardened for impairment as goodwill.

Organization is required to review the assets for impairment according to AASB 136 and the standard requires assessing the intangible assets for impairment when there is any indication for the same. Wesfarmers makes the assessment of intangible assets whether there is any indication of impairment as required by Australian accounting standard (Yao et al., 2015).

The intangible assets of Wesfarmers comprised of brand, contractual and non contractual relationships, gaming and liquor license and software.  Brand, gaming and liquor licenses have indefinite useful lives and reviewing of assets with an assumed indefinite lives are done at each reporting period for determining whether such assumptions are appropriate. If the assumptions are found to be inappropriate, the assumptions regarding the useful lives are changed to finite life and any change in accounting estimate helps in accounting any prospectively of assets. Intangible assets such as software, contractual and non contractual relationships have finite lives of seven years and fifteen years respectively. Intangible assets of Wesfarmers that have arisen through business combination that comprise of contractual and non contractual relationships (Cheung & Lau, 2016).

Accounting Standards related to AASB 138 and AASB 136

AASB 136 paragraph 88 requires reporting entity to make the assessment of useful lives of intangible assets whether it is infinite or finite in length. An intangible asset is considered by reporting entity having indefinite useful lives by making the analysis of all relevant factors attributable to the same (Hu et al., 2015). If the period over which net cash flows for entity are generated does not have any foreseeable limit, then the lives of intangible assets are considered to be imprecise. Amortization of intangible assets is done when it has finite useful lives as per paragraph 97-107. As per paragraph 107-110, the intangible assets having indefinite useful lives are not amortized. The total amount of intangible assets recorded during the financial year 2016 and 2017 stood at $ 4553 million and $ 4539 million respectively (, 2018).

Wesfarmers has certain brands which have been assessed to have indefinite lives based on different factors such as ongoing expected probability, strong brand strength and continuing support. Some of the complimentary assets that are incorporated in the brand include network, store formats and product offerings. In addition to this, the group has assessed liquor license and gaming having indefinite lives and such assessment is based on the fact that it is required to renew licenses in line with the requirements of business continuity (Su et al., 2018).

Moreover, the intangible assets of Wesfarmers having indefinite lives are allocated to cash generating units. Allocation of intangible assets having indistinct lives are done to cash generating units is recorded at $ 3944 million and $ 3945 million respectively. Assessment of recoverable amount of intangible assets having indefinite lives is done by group by making some assumptions which comprise of discount rate, computation of terminal value as percentage of recoverable value of cash generating unit, growth rate that is beyond corporate plan and headroom as a percentage of net carrying value of cash generating unit (Bond et al., 2016).


Adoption of International financial reporting standard by Wesfarmers has required changing their accounting policy. Implementation of such reporting standard incurred considerable expenses that had resulted in reduced retained earnings in earlier year. It can be concluded from the analysis of impact of such international reporting standard in relation to intangible assets that Wesfarmers comply with the recognition criteria. In addition to this, organization provides the specification of how the carrying amount of intangible assets is measured. In relation to impairment of intangible assets, group has also conducted the assessment as per the requirements of Australian accounting standards. Therefore, it can be concluded Wesfarmers has complied with the reporting requirement of intangible assets. 

References list:

Bepari, M. K., Rahman, S. F., &Mollik, A. T. (2014). Firms’ compliance with the disclosure requirements of IFRS for goodwill impairment testing: Effect of the global financial crisis and other firm characteristics. Journal of Accounting and Organizational Change, 10(1), 116-149.

Bond, D., Govendir, B., & Wells, P. (2016). An evaluation of asset impairment decisions by Australian firms and whether this was impacted by AASB 136.

Bond, D., Govendir, B., & Wells, P. (2016). An evaluation of asset impairments by Australian firms and whether they were impacted by AASB 136. Accounting & Finance, 56(1), 259-288.

Cheung, E., & Lau, J. (2016). Readability of Notes to the Financial Statements and the Adoption of IFRS. Australian Accounting Review, 26(2), 162-176.

Garg, M. (2017). Analysis of Hidden Value and Value Relevance of Financial Statements Pre-and Post-IFRS Adoption. Journal of Modern Accounting and Auditing, 13(2), 51-74.

Hu, F., Percy, M., & Yao, D. (2015). Asset revaluations and earnings management: Evidence from Australian companies. Corporate Ownership and Control, 13(1), 930-939.

Jermakowicz, E. K., Reinstein, A., &Churyk, N. T. (2014). IFRS framework-based case study: DaimlerChrysler–Adopting IFRS accounting policies. Journal of Accounting Education, 32(3), 288-304.

Ji, K. (2013). Better late than never, the timing of goodwill impairment testing in Australia. Australian Accounting Review, 23(4), 369-379.

Kung, F. H., James, K., Cheng, C. L., & Jaafar, S. B. (2013). The Association between Goodwill Amortisation and the Dividend Payout Ratio. Asian Journal of Business and Accounting, 6(2).

Saidu, S., & Dauda, U. (2014). An assessment of compliance with IFRS framework at first-time adoption by the quoted banks in Nigeria. Journal of Finance and Accounting, 2(3), 64-73.

Steenkamp, N., & Steenkamp, S. (2016). AASB 138: catalyst for managerial decisions reducing R&D spending?. Journal of Financial Reporting and Accounting, 14(1), 116-130.

Steenkamp, N., & Steenkamp, S. (2016). AASB 138: catalyst for managerial decisions reducing R&D spending?. Journal of Financial Reporting and Accounting, 14(1), 116-130.

Su, W. H., & Wells, P. (2018). Acquisition premiums and the recognition of identifiable intangible assets in business combinations pre and post IFRS adoption. Accounting Research Journal, (just-accepted), 00-00. (2018). Retrieved 9 August 2018, from

Yao, D. F. T., Percy, M., & Hu, F. (2015). Fair value accounting for non-current assets and audit fees: Evidence from Australian companies. Journal of Contemporary Accounting & Economics, 11(1), 31-45.