Reference no: EM13340962

Topic:

While the accounting profession and regulators still struggle with determining a single measurement regime are whole new class of assets has developed-particularly since around the beginning of this century. We are all familiar with physical assets and with most types of intangible assets but virtual assets are the latest items with which the profession needs to contend.

Virtual assets arise most commonly from the virtual economy which exists in a virtual world online. Participants in the game Second Life for instance are required to purchase Linden dollars in order to undertake transactions within that world. So real money is being used to purchase virtual goods in these worlds but these goods do not cease to exist when the player ceases playing the game and Linden dollars can be exchanged for real money by selling them to another player.

Virtual assets do not consist only of those we find with in online games however. Virtual assets also include electronic data stored on a computer or the Internet, such as digital photos, domain names and Internet bank accounts. There are increasing concerns about how people deal with such assets in terms of their estate planning (in other words, what happens to these items when we die?) and taxation authorities are becoming increasingly interested in the issue as well.

Just to confuse things, we now have the situation where some real-world companies are offering transaction within the virtual world-that is, it is possible to undertake purchases and other transactions with real companies for real goods within some Internet games.

The given article provides students with a starting point but you will need to undertake research into this topic in order to be able to adequately meet the requirements outlined below.

Requirements

You have been approached by a large accounting firm to provide advice in relation to Virtual assets.

In particular, the managers of the firm have requested that you provide a report outlining the following:

• what are Virtual assets? How are they different to the commonly understood notion of intangible assets?

• Do these items meet the definition criteria for assets contained in the Framework?

• Do these items meet the recognition criteria for assets contained in the Framework?

• Should these items be recognised on the financial statements or would disclosure in the notes be sufficient?

• Is income earned in a virtual world "real"? If so, should such profits be reported?

• If we are required to recognise these items on the financial statements then we need to be able to measure them. What measurement model would you recommend?

In completing this report, students can certainly include information relating to online gaming but remember that this report is being prepared for an accounting firm whose greater concern would be other types of Virtual assets. You must therefore not confine your discussion to online gaming, but it does provide a useful and fairly clear starting point.