Bulletin C-8 Intangible Assets

Bulletin C 8 Intangible Assets

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What is a bulletin or NIF (Financial Information Standard? and what are they for?

A bulletin or Financial Reporting Standards (NIF) constitute a set of essential accounting guidelines and principles for the proper preparation and presentation of financial information in an entity,These standards, developed and supported by regulatory and accounting bodies, establish uniform criteria for the recognition, measurement, presentation and disclosure of financial elements in an organization's financial statements.


The fundamental function of newsletters or NIF is to provide coherence and transparency in the communication of the financial position and economic performance of an entity, both for its internal and external users, such as investors, creditors and financial analysts, the application of these regulations not only ensures the comparability of the statements between different entities, but also reinforces the reliability of accounting information, facilitating informed decision making. 


Furthermore, the NIF They evolve in response to changes in the economic and regulatory environment, adapting to address emerging complexities in accounting and ensure the continued relevance of financial information in the business environment.


The main objective of the Financial Reporting Standards (NIF) is to provide a standardized accounting framework that guides the preparation and presentation of financial information in entities, as we mentioned.

These standards play several key roles:


1. Uniformity and Consistency:

They establish uniform accounting principles and criteria to ensure that entities apply consistent methods when preparing their financial statements.


2. Transparency and Clarity:

They facilitate the presentation of clear and understandable information, allowing users to easily understand the financial situation and economic performance of an entity.


3. Comparability:

They facilitate the comparison of financial statements between different entities and over time, which is essential for investors, analysts and other interested parties.


4. Informed Decision Making:

They help users of financial information, such as investors, managers and creditors, make informed decisions based on consistent and reliable financial data.


5. Legal and Regulatory Compliance:

They serve as a reference for compliance with legal and regulatory requirements, as many jurisdictions require following specific regulations when preparing financial reports.


6. Stability and Confidence in the Market:

They contribute to stability and confidence in financial markets by establishing standards that promote integrity and ethics in the presentation of financial information.


7. Adaptability to Changes:


They evolve to adapt to changes in the economic and regulatory environment, ensuring the continued relevance of accounting information in a dynamic business world.

How many Financial Reporting Standards exist?

The number of Financial Reporting Standards (FRS) may vary depending on the country or region, since each jurisdiction may have its own set of accounting standards, at the international level, the International Financial Reporting Standards (IFRS or IFRS for its acronym in English) are a set of global accounting standards that are used in many countries around the world.


In the specific case of IFRS, as they evolve and are updated, the number of individual standards may change. Until January 2022, there were several IFRSs that addressed different accounting aspects, such as income, leases, financial instruments, among others and it is It is important to check the version and specific adoption of standards in a particular jurisdiction to obtain the most accurate and up-to-date information, and some countries may have national standards that complement or modify adopted international standards.


However, there are 5 categories designated as NIF A, NIF B, NIF C, NIF D and NIF E make up the regulatory structure. 


  • Series A, known as the Conceptual Framework, addresses the organization and fundamental postulates of the Financial Reporting Standards (NIF), detailing the proper presentation of financial statements.


  • Series B focuses on the standards applicable to financial statements, providing specific guidelines for the preparation of financial documents such as the Cash Flow Statement, Income Statement, Statement of Financial Position, and Balance Sheet, among others. 


  • Series C addresses standards applicable to specific financial statement concepts, offering particular guidelines for concepts such as accounts receivable, inventories, investments, intangible assets, advance payments, among others, Series C standards make it easier for companies to understand of financial concepts essential for the accurate presentation of financial information. 


  • Series D focuses on standards applicable to earnings determination issues, addressing common issues affecting comprehensive earnings determination, such as leases, share-based payments, customer contract revenues, and employee benefits. 


  • Series E addresses Standards applicable to specialized activities in different sectors, focusing on specific activities that may not be primarily for profit, such as donations received or granted by non-profit entities or agricultural activities.


Bulletin C-8 Intangible Assets, what does it say?

The objective of this standard is to establish the criteria for the recognition of intangible assets as well as their accounting treatment, through its particular valuation, disclosure and presentation rules.

Intangible assets: Intangible assets refer to identifiable elements that lack physical presence and are used in the production, supply of goods, provision of services or administrative purposes. These assets are intended to generate future economic benefits that the entity controls, and have two fundamental characteristics:


  1. They constitute disbursements, rights or advantages obtained with the purpose of providing specific benefits to the entity's operations over periods that transcend the date on which they were made or acquired, the benefits translate into the ability of the operations to reduce costs or increase income in the future.


  1. Projected future benefits are at the present moment, often expressed intangibly through an asset that is non-material in nature, that is, one that does not possess a physical form nor physically contribute to the production or operation of the entity, the lack of physical characteristics does not hinder their recognition as legitimate assets.


There are distinctive elements in the definition of an intangible asset which are:


  1. Identifiable 

  2. It must generate future economic benefits in a reasonably anticipated manner.

What are intangible assets?

Intangible assets are classified into various categories based on their characteristics and how they provide economic benefits.

 Some of the common categories of intangible assets include:


Goodwill (Plusvalía): It represents the value of reputation, loyal clientele, strategic location and other factors that contribute to the success of a company and is generally recognized in a business acquisition when the purchase price exceeds the net book value of the assets acquired.


Copyright: They include legal rights over artistic, literary or musical works; these rights allow the owner to control the reproduction, distribution and exhibition of the work.


Patents: They grant their owner the exclusive right to use, manufacture and sell a patented invention for a limited period.


Trademarks and Trade Names: They represent distinctive signs that identify products or services, trademarks usually refer to specific products, while trade names apply to the entire company.


Licenses and Franchises: They grant rights to use intellectual property or a specific business model in exchange for royalties or fees.


Software: Includes the rights to use computer programs and operating systems. This can be software developed internally or acquired externally.


Clients and Business Relations: They represent the value associated with customer loyalty, established business relationships and customer contracts.


Contracts and Concessions: They include contracts and concessions that grant exclusive rights to provide certain services or products in a specific geographic area.


Research and Development (R&D): Understands the value of costs related to the research and development of new products, processes or technologies.


Exclusivity Rights: They include any exclusive rights that give the company a competitive advantage, such as exclusive marketing rights.


It is important to note that the classification of intangible assets may vary depending on the accounting regulations and business practices specific to each country. Furthermore, the accounting and valuation of these assets are subject to accounting standards and regulations, such as NIF C-8 in Mexico or International Financial Reporting Standards (IFRS/IFRS).


The deterioration in intangible assets

In the accounting field, the deterioration of intangible assets is a phenomenon that requires special attention. Intangible assets, lacking physical substance, are susceptible to factors that can impair their value over time. This deterioration can manifest itself due to various reasons, such as changes in the economic, technological or legal environment, that affect the ability to generate future profits associated with these assets, lThe identification of impairment in intangible assets involves the comparison between their book value and their recoverable value, the latter being the greater of their value in use and their market value less costs to sell. 


When the carrying value exceeds the recoverable value, the impairment is recognized and the value of the intangible asset is adjusted in the accounting records, the process involves a careful evaluation of the useful life, the discount rate and the associated cash flow projections. with the intangible asset in question. 


The timely detection and recognition of impairment in intangible assets is essential to ensure the accurate presentation of an entity's financial position and to inform users of financial information about the economic reality of such assets.


These are some of the key concepts within the deterioration of tangibles or intangibles


Loss due to impairment: It refers to the situation in which the future economic benefits of intangible assets are less than their “net book value.”


Net book value: It is the final result of the asset once the accumulated amortization has been subtracted and, if applicable, it has been adjusted for the accumulated impairment losses associated with it.


Residual value: It is the anticipated net amount that the entity expects to obtain at the end of the useful life of an asset, once the costs related to its sale or disposal have been discounted, expressed in monetary terms as of the date on which amortization of the asset begins. .

Valuation rules for intangible assets according to NIF C-8

Recognition and initial valuation of an intangible asset

To recognize an item as an intangible asset, it is necessary to comply with (P. 29):

  1. Know the definition of intangible assets 

  2. The recognition and measurement of future economic benefits is carried out by applying logical and sustainable assumptions, which constitute management's best estimate of the set of economic conditions that will prevail over the useful life of the asset.

  3. That the initial valuation be carried out at cost, in accordance with the principle of the original historical value, which implies recording the amounts of cash affected or its equivalent, or the reasonable estimate of these, at the moment in which they are considered to have been realized for accounting purposes.


The NIF C-8, issued by the Mexican Financial Reporting Standards Council (CINIF), establishes the valuation standards for intangible assets in the Mexican accounting context. 

Here are some of the valuation rules for intangible assets according to NIF C-8:


1. Initial Assessment: Intangible assets should be recognized initially at cost, which includes all directly attributable costs to bring the asset into a usable condition.


2. Post-Acquisition Valuation: After acquisition, intangible assets should be measured at cost less accumulated amortization and accumulated impairment losses.


3. Amortization: Intangible assets with a defined useful life must be amortized systematically over their useful life; NIF C-8 suggests rational and consistent methods for calculating amortization.


4. Useful life: The useful life of an intangible asset should be evaluated periodically and adjusted if necessary, considering obsolescence, changes in market demand and other relevant factors.


5. Impairment or Deterioration: Periodic impairment testing is required to evaluate whether there is any indication that the carrying value of an intangible asset may not be recoverable.


6. Recoverable Value: The recoverable value is determined as the greater of the value in use and the fair value less disposal costs.


7. Change in Use of the Asset: If there is a change in the intended use of an intangible asset, its useful life and amortization method must be reviewed.


Benefits of NIF C-8

Since Financial Reporting Standard (NIF) C-8 addresses the accounting treatment of intangible assets, it offers several benefits to companies and the financial community in general, such as:


1. Accounting Uniformity and Consistency: NIF C-8 establishes specific principles and procedures for the valuation, presentation and disclosure of intangible assets, which promotes uniformity and consistency in the accounting of this type of assets, facilitating comparability between entities.


2. Relevant Information and Reliability: By providing clear guidelines on how to recognize, measure and present intangible assets, the standard contributes to making financial information more relevant and reliable, which is essential for informed decision-making by investors, analysts and other stakeholders.


3. Transparency: NIF C-8 promotes transparency by requiring adequate disclosure of information related to intangible assets in financial statements and this allows users to better understand the nature, importance and risks associated with these assets.


4. Facilitates the Evaluation of Deterioration: The standard establishes clear guidelines for performing impairment tests on intangible assets, which helps companies properly evaluate whether the book value of their assets is recoverable, which is crucial to avoid overvaluation of these assets in Financial statements.


5. Compliance with International Standards: NIF C-8 is aligned with the general principles of International Financial Reporting Standards (IFRS/IFRS), it is beneficial for companies seeking to harmonize their accounting practices with international standards, facilitating the comparison of financial information at a global level.


6. Protection of Investors and Creditors: The proper application of NIF C-8 contributes to the protection of the interests of investors and creditors by providing a more accurate and complete representation of the company's financial situation, especially with respect to intangible assets.


7. Support for Decision Making: Consistent and reliable accounting information on intangible assets makes it easier for managers and business leaders to make strategic decisions as they have a clear understanding of the long-term value and contribution of these assets.


NIF C-8 contributes to improving the quality and comparability of financial information related to intangible assets, promoting greater confidence and transparency in the financial reports of entities.

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