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In the dynamic landscape of the gaming industry, financial reporting faces the unique challenge of recognising and measuring intangible assets which often hold substantial value. These assets could therefore be a cornerstone of the reported figures within this industry. This write-up delves into two key aspects of intangible assets within the gaming sector: firstly, internally developed intangible assets, and secondly, the disparity in value between acquired and internally generated brands.

Internally Developed Intangible Assets

Gaming companies often invest heavily in the creation and development of intellectual property including platforms, tailored software, and games. Part of the recognition criteria under IAS 38 ‘Intangible Assets’ specifies that the costs of the asset need to be measured reliably in order to allow for capitalisation of intangible assets. Unfortunately, this is not always the case due to difficulties in distinguishing the costs incurred in the development of the asset from the internal cost of maintaining the asset or day-to-day operations of an entity.

The recognition criteria and the requirement to split the generation of intangible assets into two phases further emphasise the need for accurate cost control of these projects:


The research phase entails the original and planned investigation in the generation of new knowledge and understanding, with the costs incurred at this stage being expensed under IAS 38. The development phase is that part of the project which makes up the application of the knowledge generated in the previous phase. The costs borne in accomplishing the latter activities may be capitalised subject to meeting a specifically laid out set of criteria for internally generated intangible assets.

Whilst revaluation is possible after the initial recognition process, this is only allowed in the presence of an active market. Unlike tangible assets with distinct market values, attributing a figure on the innovation behind such intangible assets requires an approach which does not necessarily coincide with traditional accounting methods for the matter. The latter methods often fail to reflect the potential future earnings and market dominance associated with successful gaming franchises.

Standard setters therefore need to consider the need of including valuation methodologies which incorporate future revenue streams in such scenarios. This would allow corporate reporting to move a step closer to finding a balance between conservative accounting and the economic reality of these assets.

Valuation Disparities

Users of financial statements for companies within the gaming industry face the difficulty of comparing entities that have grown organically with those that grew through acquisitions. Current IFRS standards require intangibles that are acquired under a business combination to be recognised. This needs to be contrasted with the exemptions faced when testing certain internally generated intangible assets for recognition in order to uncover value differences in brands, mastheads, customer lists and similar assets within this industry.

The difference in treatment between intangibles of organically grown entities and others which grew through acquisitions significantly impacts the results of an analysis on reported figures, particularly through higher expenses and a lower net asset for an organically grown organisation. Without an informed adjustment, this negatively impacts important metrics which are set to be closely scrutinised by investors.

In conclusion, financial reporting faces a worldwide complex task in valuing intangible assets and this intricacy is even more apparent in the gaming sector. Providing true and fair disclosures within this industry requires standard setters and accounting professionals to adapt to the unique characteristics of internally developed assets and to manage the possible disparities that may result from an ever-changing industry.

Neville Saliba

Financial Reporting Team Leader

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