CII Urges Overhaul of India's Intangible Assets Framework Amid Digital Shift

The Confederation of Indian Industry calls for a reassessment of intangible asset recognition and accounting in India's evolving digital economy. CII highlights the need for improved standards to address internally generated intangibles, urging consideration of brands and algorithms as valuable assets in sectors like SaaS and advanced manufacturing.

The Confederation of Indian Industry (CII) has urged for a sweeping review of how intangible assets are recognized and accounted for as India shifts towards a digital economy. According to CII, these intangible assets play a vital role in value creation under modern business models, particularly in sectors like Software as a Service (SaaS), Platform as a Service (PaaS), blockchain platforms, and advanced manufacturing.

Currently, India's Financial Reporting Standard Ind AS 38, modeled after IAS 38, only allows recognition of acquired intangible assets, barring capitalisation of those internally generated. Chandrajit Banerjee, CII's Director General, stressed a comprehensive set of recommendations to exploit India's Digital Economy potential. He emphasized that not recognizing internally developed intangibles leads to their exclusion from governance, financial reporting, and auditing frameworks, making them less visible to auditors, investors, and in financial statements.

Banerjee noted concerns that part of the gap between market capitalisation and book value could stem from the lack of recognition for internally generated assets. The industry body recommends that intangible assets tied to brand development, including proprietary algorithms and user engagement, be capitalized if they possess lasting value.

CII suggests that the accounting practices for SaaS, PaaS, and IaaS require a review to permit capitalization of development costs with long-term benefits. Intangible assets acquired during pharmaceutical amalgamations should be acknowledged based on economic valuation.

CII also advocates for recognizing costs related to new automotive platform development based on management discretion. With India pushing towards Net Zero, the body emphasizes reevaluating Carbon Credits (CERs) as assets.

CII underscores the urgency for a more adaptable approach towards the revaluation and measurement of intangible assets, as the divide between market and book value expands.

(With inputs from agencies.)