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”. This method uses the cash flows that expected by the entity and a discount rate. Another method which is the method of real option, is useful to estimate the value of intangible assets which under development and yet to be prove to be commercially viable. The asset is viewed as a series of compound options that might generate other option and cash flow. Waiting to invest, growth options, flexibility options, exit option and learning option can be modelled as real option. The strength of this method is it solves the weaknesses of traditional present value analysis. A real option is consistent with an entity specific value or a fair value depends on whether it is available to any marketplace participants or it is entity-specific.

The report subsequently reviews back the three pronouncements under the FASB Statement No.2 and International Accounting Standards Committee conceptual frameworks. The author concluded that the rationale of the FASB Statement No.2 cannot be hold up with the following statements. First, the conceptual framework of the accounting standards does not require certainty of “probable future benefits” and there is always considerable uncertainty underlying costs which are incurred in the business entity. Second, the lack of causal relationship, the lack of usefulness of such information and inability to predict cost that associated with future economic benefits are questionable as there are some recent academic research proposes that market attributes a relationship between current expenditure and future prospects. Third, some measurement might be able to objectively measure cost incurred.

Lastly, this report lists out the reasons of objections on this issue. In terms of cost and benefit of recognizing internally generated intangible assets, users of financial statement might enjoy the benefit of it but the companies might think there is no direct benefit to them. Furthermore, only few entities will have record of costs or value of intangible assets because most companies may not keep comprehensive inventories of those assets that are not required for the purpose of tax and financial reporting. Some of the reports claim that the benefit of it cannot overweigh the cost of recognizing intangible assets. Next, as discussed earlier, the lack of relevance of the intangible asset information with future benefit, difficulty in measurement and competitive harm are among the factors of objection. On the other hand, the value of many intangible assets is beyond the management control although the company might be able to adapt with the changes. The recognizing of intangible assets might introduce volatility to financial statement as the companies have the opportunity to manipulate the company’s income statement and balance sheet in the short term and long term by using the amortization and impairment tests or when recognize as expenditure. Some suggested disclosing the intangible assets in the financial statement instead of recognize it because both can also provide information to the users.