How should intangible assets be accounted for in financial reporting? This paper examines the experiences of Australian managers and investors concerning the capitalization of intangible assets, providing insights for policy makers navigating potential future directions in accounting regulation. Focusing on the unique Australian institutional setting, the study explores the motivations behind managers' capitalization decisions and the capital market efficiency implications. Unlike the USA, Australian GAAP grants corporate managers considerable discretion in capitalizing intangible assets, regardless of whether they are acquired or generated internally. The historically lenient stance of Australian accounting regulators towards deviations from the historic cost basis of measurement is a crucial element of this discretion. Evidence from the Australian setting suggests that concerns about the reliability of measures related to intangible assets may be overstated. This research supports future regulatory deliberations and encourages further investigation into the economics of intangible investments and investor information search behaviors.
As a contribution to the Journal of Intellectual Capital, this paper directly addresses the journal's core focus on the valuation and management of intangible assets. By exploring the complexities of financial reporting for intangibles, the research offers valuable insights for academics and practitioners interested in intellectual capital management. The discussion of capital market efficiency and regulatory considerations aligns with the journal's commitment to promoting intellectual capital research and best practices.