Notre Dame University

College of Business and Accountancy

Notre Dame Avenue, Cotabato City, 9600

AUDIT OF

INTANGIBLE ASSETS

A requirement in Acctg 411n for the Second Semester in Academic Year 2022-2023

Group 5

Desiree Elaine A. Cedeño

Janneth A. Emata
Charlotte J. Palma
Rain Cyrene V. Quitiol
Ariane M. Villagonzalo
Ma. Bianca P. Villalobos

June 2023
 Notre Dame University
College of Business and Accountancy
Notre Dame Avenue, Cotabato City, 9600

AUDIT OF INTANGIBLE ASSETS

Synopsis
This paper incorporates audit objectives to achieve the overall goals for intangible assets, and
audit processes to ascertain audit assertions - existence, completeness, rights and obligations, valuation,
and presentation and disclosure of the intangible assets by evaluating the necessary paperwork.

Intangible Assets

An asset that does not have any physical components is said to be intangible. Examples of
intangibles include software, patents, copyright, franchises, goodwill, and trademarks. This asset
classification is opposed to tangible wherein physical inspection is possible. With its nature, it is typically
difficult to value an intangible asset. The audit of intangible assets involves the examination and
verification of the existence, completeness, rights and obligations, valuation, and presentation and
disclosure of intangible assets reported in a company's financial statements.

Audit

The auditor begins by understanding the nature of the entity and eventually learning about the
organization's internal controls over intangible assets. Among other things, the latter entails assessing the
systems and practices in place for classifying, cataloging, and valuing intangible assets. To confirm that
all pertinent assets have been correctly recognized and categorized, the auditor validates the identification
and classification of intangible assets. The sufficiency and accuracy of the disclosure and presentation of
intangible assets in the financial statements are also examined. Evaluating the valuation of intangible
assets is done by assessing the suitability of the methodologies and assumptions used by the company. To
gather proof of the accuracy and comprehensiveness of the intangible asset balances and transactions, the
auditor conducts substantive testing processes such as sampling, analytical tests, and detailed testing.

OBJECTIVES

The objective of an audit of intangible assets is to provide reasonable assurance in the audit of
intangible assets in the financial statements. Here are the key objectives of auditing intangible assets:

A. Existence. The auditor's primary objective is to confirm that the reported intangible assets
actually exist and are owned by the entity. This involves examining relevant documents and
agreements to verify the legal rights and title of the assets.
B. Valuation. The auditor needs to ensure that intangible assets are correctly valued and measured in
the financial statements. This requires assessing the appropriateness of the accounting policies
used by the entity, as well as evaluating the methods and assumptions employed in determining
the value of intangible assets.

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 Notre Dame University
College of Business and Accountancy
Notre Dame Avenue, Cotabato City, 9600

C. Completeness. The auditor verifies that all significant intangible assets are properly identified and
included in the financial statements. This involves reviewing documentation, such as contracts,
licenses, and intellectual property registrations, to ascertain that all relevant assets have been
recognized.
D. Presentation and Disclosure. The auditor examines the presentation and disclosure of intangible
assets in the financial statements to assess whether the auditor complies with the applicable
accounting standards. This includes verifying the accuracy and adequacy of the related
disclosures, such as descriptions of the assets, useful lives, impairment considerations, and any
restrictions or contingencies affecting their use or disposal.
E. Rights and Obligations. The auditor also considers any legal and regulatory requirements related
to intangible assets. This includes evaluating whether the entity has complied with relevant laws
and regulations concerning the acquisition, use, protection, and valuation of intangible assets.

By addressing the above objectives, the auditor aims to provide an independent and objective assessment
of the entity's intangible assets, enhancing the reliability and credibility of the financial statements for
users such as shareholders, investors, lenders, and other stakeholders.

RISK

When conducting an audit of intangible assets, there are several risks that auditors should be
aware of. Here are some common risks associated with auditing intangible assets:

1. Identification and existence risk: One of the primary challenges in auditing intangible assets is
determining their existence and ensuring the auditor has been properly identified and included in the
financial statements. Auditors need to verify that the assets claimed by the organization actually
exist and are valid intangible assets.

2. Valuation risk: Intangible assets are often difficult to value accurately. Valuation risks can arise due
to subjective estimates, lack of reliable market data, complex valuation models, and the possibility of
management bias or manipulation. Auditors need to critically evaluate the methods and assumptions
used by management to estimate the value of intangible assets.

3. Amortization and impairment risk: Intangible assets are typically subject to amortization or
impairment testing. Auditors need to assess whether the amortization policies and impairment
assessments used by the organization comply with applicable accounting standards. The auditor
must also evaluate the reasonableness of any impairment charges and the adequacy of the related
disclosures.

4. Intellectual property risk: Many intangible assets, such as patents, copyrights, and trademarks, are
based on intellectual property rights. Auditors need to assess the ownership, legal rights, and
protections associated with these assets. The auditor should verify that the organization has the
necessary licenses, registrations, or legal agreements to support its ownership claims.

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 Notre Dame University
College of Business and Accountancy
Notre Dame Avenue, Cotabato City, 9600

5. Disclosure risk: Proper disclosure of intangible assets is crucial for providing users of financial
statements with relevant and reliable information. Auditors need to ensure that the organization has
disclosed all material intangible assets, including their nature, valuation methods, and any significant
limitations or uncertainties associated with their valuation.

6. Imprecise or inadequate documentation: Intangible assets may lack physical evidence, making
documentation and support crucial. Auditors should carefully examine the available documentation,
contracts, agreements, licenses, and other relevant records to confirm the existence and validity of
intangible assets.

7. Changes in business or legal environment: Intangible assets can be affected by changes in the
business environment, such as technological advancements, regulatory changes, or shifts in market
conditions. Auditors need to consider these factors and assess whether any events or circumstances
have occurred that may impact the value or recoverability of the intangible assets.

It is important for auditors to be aware of these risks and design appropriate audit procedures to
mitigate them. Professional skepticism, thorough testing, and a deep understanding of the organization's
industry and operations are critical to addressing the risks associated with auditing intangible assets
effectively.

ASSERTIONS

When conducting an audit of intangible assets, auditors make various assertions to ensure the
accuracy and reliability of the financial statements. The assertions related to intangible assets are similar
to those for other types of assets and include the following:

1. Existence: The intangible assets being reported actually exist and are owned or controlled by the
entity.
2. Rights and obligations: The entity has legal rights to the intangible assets, and there are no
restrictions or obligations that would affect their ownership or use.
3. Completeness: All significant intangible assets are included in the financial statements, and no
material items are omitted.
4. Valuation: The intangible assets are appropriately valued and presented at their fair value or cost,
as per accounting standards and policies.
5. Presentation and disclosure: The intangible assets are properly presented and disclosed in the
financial statements, including any relevant information about their nature, useful life,
amortization, impairment, or other significant factors.

During the audit process, auditors perform procedures such as examining supporting
documentation, reviewing contracts and agreements, verifying ownership, testing valuations, and
assessing the adequacy of disclosures to obtain reasonable assurance regarding the above assertions.

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 Notre Dame University
College of Business and Accountancy
Notre Dame Avenue, Cotabato City, 9600

Table 1. Application of Audit of Intangible Assets

Assertions Audit Risk Audit Objectives Audit Procedure

Existence Lack of Review entity’s ● The auditor carefully reviews the obtained documents to
Substantiation policies and understand the entity’s policies and procedures for intangible
procedures assets. He/she assess whether the policies are comprehensive,
up-to-date, and consistent with relevant accounting standards
and regulatory requirements.
Evaluate supporting ● The auditor reviews the supporting documentation to verify the
documentation existence of the intangible assets. He/she assess whether the
documentation provides evidence of the acquisition or creation
of the assets, such as purchase agreements, licensing
agreements, or internal records.
Intellectual Property Assess ownership and ● The auditor reviews the contracts and agreements related to the
Infringement legal rights intangible assets. The auditor assesses the terms and conditions,
rights and obligations, and any provisions related to ownership
and transferability.
Confirm the existence ● The auditor reviews legal agreements, contracts, or registrations
of intellectual related to the intellectual property assets. The auditor assesses
property the terms and conditions, ownership rights, licensing
agreements, or any other legal documents supporting the
existence of the assets
Technological Evaluate ● The auditor reviews the entity's technology development plans
Obsolescence technological trends or roadmaps. The auditor assesses the planned investments in
and advancement research and development, technological upgrades, or
acquisitions of new technologies.

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 Notre Dame University
College of Business and Accountancy
Notre Dame Avenue, Cotabato City, 9600

Assess asset ● The auditor interviews management to gain a deep

relevance and understanding of the entity's business operations, strategic
usefulness objectives, and value drivers.

Rights and Infringement and Evaluate legal ● The auditor may conduct a review of policies and procedures.
Obligations Legal Disputes compliance This procedure obtains relevant policies and procedure by
requesting copies of the organizations policies and procedures,
then review legal requirements, evaluate organizations
implementation.
Identify potential ● The auditor may conduct a review of marketing and advertising
infringement materials. This involves reviewing intellectual properties
associated with the organization's products, services, brand,
trademarks, logos, copyrights, and any other proprietary assets,
then evaluate consistency with intellectual property rights,
checking the third-party infringement, and assessing misleading
or false representation.
Loss of Control and Assess legal disputes ● The auditor may review legal pleadings and court filings. It
Ownership includes checking relevant legal documents, analyzing the legal
claims and counterclaims made by all parties involved in the
disputes, evaluating whether all parties have complied with
proper legal procedures throughout the dispute resolution
process, scrutinizing the supporting evidence presented by each
party to substantiate their claims or defenses, and identifying
legal risk and liabilities.
Assess control and ● Reviewing relevant corporate governance documents and
ownership criteria organizational structure. This procedure involves. reviewing
corporate governance documents, assessing control framework,
examining ownership structure and verifying compliance and

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 Notre Dame University
College of Business and Accountancy
Notre Dame Avenue, Cotabato City, 9600

legal requirements
Regulatory and Identify potential  The auditor may conduct a review of key control mechanisms
Compliance Risks instances of loss of and evaluating their effectiveness by understanding the control
control mechanisms, identifying key control areas, reviewing control
policies and procedures, evaluating control implementation,
conduct risk assessment, performing test of control procedures
to assess their effectiveness in mitigating identified risk,
analyzing control monitoring and reporting and investigate any
known control breaches, instances of non-compliance, or
reported control exceptions
Evaluate accounting  The auditor can review financial transactions and their
treatment corresponding accounting records. This involves understanding
applicable accounting standards, identifying significant
accounting areas, reviewing accounting policies, assessing
compliance accounting standards, analyzing key financial
transactions, performing reconciliation and testing
Valuation Complexity of Understand the  The auditor obtains the valuation reports prepared by internal or
Valuation Model valuation model external experts, if available. These reports outline the
valuation model used to determine the fair value of intangible
assets
Assess reasonableness  The auditor reviews the company's policies and procedures
and appropriateness related to the recognition, measurement, and disclosure of
intangible assets. This includes understanding the criteria used
by the company to identify, classify, and record intangible
assets on the balance sheet
Changing Market Evaluate market  The auditor requires requests market analysis reports or studies
Conditions analysis prepared by internal or external experts that provide insight into
the market dynamics, trends, and factors affecting the value of
intangible assets.

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 Notre Dame University
College of Business and Accountancy
Notre Dame Avenue, Cotabato City, 9600

Assess fair value  The auditor obtains the valuation reports prepared by internal or
measurement external experts that determine the fair value of intangible
assets. These reports provide insights into the valuation
methodologies, assumptions, and inputs used in measuring the
fair value
Subjectivity and Evaluate valuation  The auditor reviews the documentation and discussions with
Lack of Market Date methods management to understand the valuation techniques applied.
This may include market-based approaches (comparable
transactions or market multiples), income-based approaches
(discounted cash flow analysis), or cost-based approaches
(replacement cost or reproduction cost).
Assess reasonableness  The auditor reviews the supporting information used to develop
of assumptions the assumptions, such as historical financial data, market
research, or industry benchmarks. The auditor assesses the
quality and reliability of the information to ensure it is relevant
and supports the assumptions made.
Presentation Inadequate Review applicable  The auditor obtains the relevant accounting standards related to
and Disclosure Disclosure accounting standards intangible assets. These standards provide guidance on
recognition, measurement, presentation, and disclosure of
intangible assets. The auditor carefully reviews the standards to
understand the requirements and principles outlined for
intangible asset accounting.
Evaluate  The auditor thoroughly understands the disclosure requirements
completeness of outlined in the accounting standards. This includes the specific
disclosures information that needs to be disclosed regarding intangible
assets, such as their nature, carrying amount, useful life,
impairment assessments, and any significant assumptions or
judgments made in their measurement.
Valuation Review applicable  The auditor carefully reviews the notes to the financial

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 Notre Dame University
College of Business and Accountancy
Notre Dame Avenue, Cotabato City, 9600

Uncertainty accounting standards statements that pertain to intangible assets. These notes
typically include disclosures specific to intangible assets, such
as a summary of significant accounting policies, details of
individual intangible asset categories, carrying amounts,
amortization methods, and useful lives.
Assess completeness  The auditor reviews the financial statements including the
of disclosures balance sheet and notes to the financial statements, to identify
the disclosure of intangible assets. The auditor assesses whether
the disclosure is clear, concise, and transparent, enabling users
of the financial statements to understand the nature and
significance of the intangible assets.
Overvaluation or Review applicable  The auditor reviews the valuation methodologies used to
Undervaluation accounting standards determine the fair value of intangible assets. This may include
income approach, market approach, or cost approach. The
auditor familiarized themselves with the specific methods
applied and the underlying principles and assumptions.
Assess accuracy of  The auditor compares the disclosed information to the
valuation requirements outlined in the accounting standards. The auditor
evaluates whether all necessary and relevant information
regarding intangible assets has been disclosed. This includes
assessing whether all significant assumptions, estimates, and
judgments used in the measurements and impairment of
intangible assets have been appropriately disclosed.

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 Notre Dame University
College of Business and Accountancy
Notre Dame Avenue, Cotabato City, 9600

Audit Program

Client: _________________________________ Date: _____________

Period: _________________________________

Subject: Intangible Assets

Est. Procedures W/ Done Comment/Explanations

Hrs. P By
Ref
AUDIT OBJECTIVES

A. Confirm that the reported

intangible assets actually exist and
are owned by the entity.
B. Ensure that intangible assets are
correctly valued and measured in the
financial statements.
C. Ensure all significant intangible
assets are properly identified and
included in the financial statements.
D. Assess whether the auditor
complies with the applicable
accounting standards.
E. Evaluating whether the entity has
complied with relevant laws and
regulations concerning the
acquisition, use, protection, and
valuation of intangible assets.

AUDIT PROCEDURES

Existence
1. Reviews the obtained
1 documents to understand the
entity's policies and procedures
for intangible assets.
1. Reviews the supporting
2 documentation to verify the
existence of the intangible
assets.
1. Reviews the contracts and
3 agreements related to the
intangible assets.

Rights and Obligation

 Notre Dame University
College of Business and Accountancy
Notre Dame Avenue, Cotabato City, 9600

3. Requesting copies of the

1 organizations policies and
procedures, then review legal
requirements, evaluate
organizations implementation.
3. Reviewing intellectual
2 properties associated with the
organization's products,
services, brand, trademarks,
logos, copyrights, and any
other proprietary assets.
3. Checking relevant legal
3 documents, analyzing the legal
claims and counterclaims
made by all parties involved in
the disputes, evaluating
whether all parties have
complied with proper legal
procedures.

Valuation
4. Requests market analysis
1 reports or studies.
4. Obtains the valuation reports
2 prepared by internal or
external experts.
4. Reviews the supporting
3 information used to develop
the assumptions, such as
historical financial data,
market research, or industry
benchmarks.

Presentation and Disclosure

5. Obtains the relevant
1 accounting standards related to
intangible assets.
5. Reviews the notes to the
2 financial statements that
pertain to intangible assets.
5. Evaluates whether all
3 necessary and relevant
information regarding
intangible assets has been
disclosed.
 Notre Dame University
College of Business and Accountancy
Notre Dame Avenue, Cotabato City, 9600

Audit Conclusion

Based on the substantive test procedures outlined above, I/we believe the audit objectives established at
the beginning of this audit program have been met / not met, except as follows: 

____________________________________________________________________________
____________________________________________________________________________
____________________________________________________________________________
____________________________________________________________________________

__________________           _________________         
   Auditor’s Signature Audit Partner
 Notre Dame University
College of Business and Accountancy
Notre Dame Avenue, Cotabato City, 9600

REFERENCES

Deloitte. (n.d.). IAS 38 — Intangible Assets. Retrieved from IAS Plus:

https://www.iasplus.com/en/standards/ias/ias38

Hucklesby, M., & Carroll, S. (2022, November 14). IFRS 3 - Recognition principle. Retrieved from Grant
Thornton: https://www.grantthornton.global/en/insights/articles/ifrs-3-insights/recognition-
principle/

International, G. T. (2021, August 3). IAS 36 - If and when to undertake an impairment review. Retrieved
from Grant Thornton International: https://www.grantthornton.global/en/insights/articles/IFRS-
ias-36/ifrs-ias-36-If-and-when-to-undertake-an-impairment-review/

PCAOB . (n.d.). AU Section 328 Auditing Fair Value Measurements and Disclosures. Retrieved from
PCAOB Org: https://pcaobus.org/oversight/standards/archived-standards/pre-reorganized-
auditing-standards-interpretations/details/AU328

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