In Brief – PSAB’s Exposure Draft, “Intangible Assets, Proposed Section PS 3155”

Why did PSAB undertake this project?

Respondents to PSAB’s November 2022 Work Plan Consultation voted for a major technical project on intangible assets as a top priority.

As a result of this feedback, PSAB decided to take on a project on intangible assets. This project would fill a gap for comprehensive, foundational guidance on intangible assets. The development of comprehensive guidance on intangible assets also presented an opportunity for the first official application of PSAB’s International Strategy, which would leverage principles of an existing international standard (i.e., IPSAS 31, Intangible Assets).

Owing to the feedback from interested and affected parties, PSAB decided to also include the development of a guideline for accounting for CCAs in the Canadian public sector, as part of its Intangible Assets project.

PSAB decided upon a staggered approach for this project, which means that once the exposure draft for a proposed standard on intangible assets had been issued for comment, the work to develop a cloud computing guideline could commence.

Key Proposals in the Exposure Draft

The Exposure Draft, “Intangible Assets, Proposed Section PS 3155,” provides foundational accounting guidance for intangible assets, addressing their definition, recognition and measurement, and required disclosures. Highlights of key proposals include the following:

Scope

The proposed standard covers both acquired and internally generated intangible assets.

Section PS 3155, Intangible Assets, will replace the existing Public Sector Guideline (PSG) 8, Purchased Intangibles. PSG-8 content has been incorporated into the new section, ensuring continuity of recognition for purchased intangibles.

The scope of the proposed standard excludes intangible assets addressed in other Sections of the PSA Handbook, as well as other intangible items such as exploration and extraction costs for non-renewable resources or intangible assets related to insurance contracts.

Definition

An intangible asset is an identifiable non-monetary economic resource without physical substance.

The definition of an intangible asset requires an intangible resource to be separate and identifiable from goodwill. It also requires that the entity has control over the intangible resource, that future economic benefits flow from the intangible resource, and that the intangible resource is the result of a past transaction and/or other events.

Common examples include computer software not integral to the related computer hardware, patents, copyrights, acquired fishing licenses, and acquired import quotas.

Not all intangible resources will meet the definition of an intangible asset.

Some intangible assets may be contained in or on a physical substance. Professional judgment is needed to assess which element is more significant and how integral the components are relative to one another based on the purpose and use of the integrated asset. For example, software that is not integral to the related computer hardware is treated as an intangible asset. If software is considered integral to hardware, guidance in Section PS 3150, Tangible Capital Assets, should be applied.

Recognition Criteria

An intangible resource is recognized as an intangible asset when it:

1. meets the definition of an intangible asset, and
2. the cost of the asset can be measured in a faithfully representative way.

To assess whether an internally generated intangible asset meets the criteria for recognition, an entity classifies the generation of the asset into (1) a research phase and (2) a development phase.

Expenditures incurred in the research phase of an internally generated project should be expensed.

An intangible asset arising from the development phase is recognized if the entity demonstrates all of the following:

1. the technical feasibility of the asset;
2. an intention and ability to complete the intangible asset;
3. the ability to use or sell the asset;
4. the future economic benefits of the asset;
5. the availability of adequate technical, financial, and other resources to complete the development and to use or sell the intangible asset; and
6. the ability to measure its cost in a faithfully representative way.

Internally generated brands, goodwill, mastheads, and publishing titles should not be recognized as intangible assets.

Measurement

Initial measurement

Separately acquired

Intangible assets acquired separately should be measured initially at cost. The initial cost of a separately acquired intangible asset may be determined as the purchase price and any directly attributable expenditures for preparing an asset for intended use.

In some cases, an intangible asset may be acquired through a non-exchange transaction. Under these circumstances the cost of the item is its fair value at the date it is acquired unless measurement guidance for the non-exchange transaction is specified in another standard.

Internally generated

Costs related to internally generated assets comprise of directly attributable expenditures necessary to create, produce, and prepare the asset to be capable of operating in the manner intended.

Exchanges of assets

If one or more intangible assets are acquired in exchange of non-monetary assets, they are measured at fair value, unless the fair value of neither the asset received nor the asset given up can be reliably measured. If fair value is not used, the cost is measured at the carrying value of the asset given up.

Subsequent measurement

After initial recognition, intangible assets are carried at cost less accumulated amortization and accumulated impairment losses.

Useful Life

The useful life of an intangible asset can be finite or indefinite. The proposed standard provides guidance on the factors to consider when determining the useful life of intangible assets.

Amortization

The method of amortization selected should reflect the consumption pattern of future economic benefits related to the intangible asset.

Amortization methods that may be applicable include:

• straight-line method;
• diminishing balance method; or
• units of production method.

The proposed standard provides a rebuttable presumption against using revenue generated by an activity as a basis for amortization.

Intangible assets with indefinite useful lives should not be amortized but are subject to annual impairment testing.

Amortization period and method should be reviewed at each reporting period.

Impairment

Impairment testing is required when certain impairment indicators are present.

Impairment occurs when the carrying amount of an intangible asset is greater than its recoverable service amount.

The recoverable service amount is defined as the higher of (a) the fair value less cost to sell and (b) the value in use.

The value in use is defined as the present value of an asset’s remaining service potential and is determined using the depreciated replacement cost approach.

Impairment losses are recorded as an expense in the statement of operations and cannot be reversed in future periods.

Disclosures

The specific disclosure requirements for each class of intangible assets include disclosing the following: useful lives, amortization methods, carrying amounts, additions, disposals, impairment losses, value of assets not being amortized, nature and amount of contributed intangible assets received, nature and use of intangible assets recognized at nominal value, nature and amount of intangible works of art and historical treasures, and the amount of any interest capitalized.

The proposed standard supports a disclosure-only approach for intangible works of art, historical treasures and collections, consistent with the disclosure-only approach for tangible works of art, historical treasures, and collections. Examples of such assets may include recordings of significant historical events and the rights to use the likeness of a significant public person on, for example, postage stamps or collectible coins.

When are the proposals effective?

The proposals are effective to fiscal years beginning on or after April 1, 2030. Earlier adoption is permitted.

An entity may apply the proposals:

1. to new transactions and other events occurring on or after April 1, 2030; or
2. through modified retroactive application, which is retroactive application with restatement in accordance with Accounting Changes, paragraph PS 2120.06(c); however the useful life is determined and any impairment may be measured using information and assumptions that are current at the beginning of the fiscal year in which this Section is first applied.

PSAB’s International Strategy – Leveraging IPSAS 31, Intangible Assets

In developing the proposed intangible assets standard, the principles of IPSAS 31, Intangible Assets, have been adapted in accordance with PSAB’s International Strategy and the “Criteria for Modifying and Reviewing IPSAS Principles,” which state that PSAB will make amendments to an IPSAS principle if:

1. it is contrary to PSAB’s Conceptual Framework; and
2. PSAB finds the principle is not appropriate for application in Canada based on the Canadian public interest.

The application of the International Strategy and key modifications have been described in the Basis for Conclusions of the Exposure Draft for Proposed Section PS 3155. Examples of key modifications include:

• Aligning the recognition criteria with PSAB’s Conceptual Framework.
• Removing guidance and references to public sector combinations as defined in IPSAS 40, Public Sector Combinations. The acquisition accounting model in IPSAS 40 does not align with guidance in the PSA Handbook. Further, acquisitions as described in IPSAS 40 are considered rare in the Canadian public sector.
• Removing the guidance and references to the current value model for subsequent measurement. This measurement model does not exist in PSAB’s Conceptual Framework.
• Replacing the “heritage asset” terminology with “works of art, historical treasures and collections” to align with terminology in the PSA Handbook.
• Adding impairment guidance that is anchored in the historical cost measurement attribute. The PSA Handbook does not have comprehensive standalone guidance on impairment, when compared to the Handbook of International Public Sector Accounting Pronouncements. Including this guidance was considered crucial due to the lack of physical substance of intangible assets and ensuring completeness of the guidance provided within the proposed standard.
• Amending the transitional provisions so that they are appropriate for the Canadian public sector.
• Amending various terminology to be consistent with the terminology in the PSA Handbook.

We want your feedback!

Get involved and share your views by our comment deadline, May 30, 2025.

How can I comment on the proposals?

Submit your feedback by submitting a response letter or taking part in the Connect.FRASCanada.ca survey.

We value your feedback and look forward to your comments!