Control of the resource

Learning objectives

• Analyse whether the entity controls an intangible resource (power to obtain the benefits and to restrict the access of others to them).L2, L3
• Assess control in a software-as-a-service arrangement (configuration of software hosted by the supplier).L3

Normative references

• IAS 38 §13An entity controls an asset if it has the power to obtain the future economic benefits flowing from the underlying resource and to restrict the access of others to those benefits. That power normally stems from legal rights that are enforceable in a court of law, but legal enforceability is not a necessary condition for control: control may be demonstrated in some other way.
• IAS 38 §14Market and technical knowledge may give rise to future economic benefits; the entity controls those benefits if the knowledge is protected, for example by legal rights (copyright), a restraint of trade agreement where permitted, or a legal duty on employees to maintain confidentiality.
• IAS 38 §15A team of skilled staff and the skills arising from training usually give the entity insufficient control over the expected future economic benefits to meet the definition; specific management or technical talent meets it only if it is protected by legal rights.
• IAS 38 §16In the absence of legal rights or other ways to control customer relationships or customer loyalty, the entity usually has insufficient control to meet the definition; however, exchange transactions for the same or similar non-contractual customer relationships provide evidence of control.

Original summaries of the paragraphs (reference register), never a quotation of the standard.

20 questions

• A chain of stores has built, through costly campaigns, a loyal customer base that makes regular purchases. No contract binds these customers, who are free to go to competitors, and no exchange transactions for similar customer relationships are observed. Management wishes to recognise this customer relationship as an intangible asset. Which analysis is correct?L3
• An engineering consultancy has recognised the items below as intangible assets. Which one is an error?L2
• True or false? A team of highly qualified engineers, recruited at great expense by Ventelis, generally does not meet the definition of an intangible asset.L2
• Lindor reviews four resources. Which one meets the definition of an intangible asset?L2
• The consultancy Talvio reviews the following items. Which ones can meet the definition of an intangible asset?L2
• For an entity to control an intangible resource within the meaning of IAS 38, what must it primarily demonstrate?L2
• Quorvel funds a six-month certification course for its maintenance technicians. The technicians remain free to resign at any time. Management believes that the skills acquired will generate lasting productivity gains. How should the cost of this training be accounted for?L2
• Halvion employs an engineer whose expertise in acoustics is recognised across the industry. In which situation could this technical expertise meet the definition of an intangible asset?L3
• Lunacor has regular business relationships with customers who are not bound by any contract. Which of the following can demonstrate that Lunacor controls these customer relationships?L2
• Under IAS 38, which of the following resources do not usually give the entity sufficient control to meet the definition of an intangible asset?L2
• The Tessaly group is analysing several intangible resources. Which of the following items constitute evidence of control over the resource concerned?L3
• Brenhal, a distributor of industrial supplies, separately acquires from a competitor leaving the market a portfolio of relationships with regular customers who are not bound by contract. In this industry, portfolios of this kind frequently change hands between distributors. The management controller considers that, without a contract, Brenhal cannot control these relationships. What conclusion should be drawn on control?L3
• Sylvex has recruited and trained a team of forty data analytics specialists, whose reputation attracts new customers. The employment contracts allow each specialist to resign with one month's notice and contain no other clause. The chief executive wishes to recognise the value of this team as an intangible asset. What should the answer be?L2
• Clarvia takes out a three-year subscription to sales management software as a service. The software is hosted on the supplier's servers; the supplier updates it at its sole discretion and makes it available to many other customers. Clarvia accesses it over the internet, without being able to take possession of it or install it on its own servers. Before analysing the configuration costs of the software, Clarvia considers whether it controls the software itself. What conclusion should be drawn?L3
• After an intensive sales campaign, Ambrino has increased its regional market share from 12% to 20%. Its customers, individuals, are not bound by any contract and no comparable sale of a customer base has been observed in the industry. The chairman wishes to recognise the market share gained, which he considers lasting, as an intangible asset. Write a memo analysing whether this market share meets the definition of an intangible asset from the perspective of control.L3
• Corvalis has set up an in-house academy that trains its engineers in advanced technologies every year. The technical director proposes to recognise as intangible assets, first, the academy's cost for the year and, second, the know-how of its lead engineer, which he considers irreplaceable. No contract or legal right protects this know-how and the engineer can leave the entity freely. Write a judgement memo on these two proposals.L3
• Which of the following must the entity demonstrate before recognising an intangible asset?L1
• Calvenor pays a lump sum to a marketing agency to win new individual customers, who are free to buy elsewhere and bound by no contract; no sale of similar customer relationships is observed in the industry. The finance director notes that the invoice allows the cost to be measured reliably and that additional sales are probable; he proposes to capitalise the amount. Which analysis should be retained?L3
• Mardelle, a commodity trader, acquires for a fixed price an exclusive three-year contractual right to a market data feed: the supplier undertakes not to sell this feed to any other player in the region. Mardelle expects to derive probable trading gains from it. It also organises, at its own expense, training for its traders on using the feed. Write a memo concluding on the accounting for these two items of expenditure.L3
• Ostravel has developed unpatented technical know-how for treating alloys. Its engineers are bound by a legal duty of confidentiality, the breach of which is sanctioned. From the sole standpoint of control, does Ostravel control the future economic benefits expected from this know-how?L2