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Attempts to go back to a system of historic cost-based accounting would create more problems than solutions, argues George Hampton
Professors Ryan and Tibbits recently (see Australian Accountant, May 1996) reviewed Leo, Hoggett and Radford's publication, Accounting for Identifiable Intangibles and Goodwill. But there is more to their article than the title - `Intangibles - An Alternative View' - suggests. It is not just about intangible assets and their measurement but an attempt to re-instate the 'old' system of historic cost accounting, without revaluations.
Transactions and cost allocations are the basis for the system; historic costbased accounting (HCA) is an appropriate designation Essentially, Ryan/Tibbits recommend a return to the past. But the usefulness of cost-based measures for general purpose financial reporting in a dated statement of financial position is highly questionable.
Over the years, problems with the HCA system led to numerous deviations from historic cost. Revaluations were permitted because the 'numbers' shown alongside assets on an HCA balance sheet were often out-of-date and rather meaningless. The Ryan/Tibbits recommendation would have us return to the situation that existed when upwards revaluations of assets were prohibited.
ATTACK ON FRAMEWORK
The Ryan/Tibbits review is not just an attack on the recommendations in Accounting for Identifiable Intangibles and Goodwill and the definition and valuation or measurement of goodwill, but their views are inconsistent with many of the basic ideas in the Australian conceptual framework.
Yet their ideas may find support. According to a recent survey, the Group of 100 favour the use of historic cost for the measurement of many assets; so do financial analysts. Unfortunately, that support does not rest on a satisfactory conceptual base when it comes to the presentation of a dated statement of financial position....