Arsenal PLC: Control an Asset - Coursework Example

ARSENAL PLC Arsenal is a premier football club in world’s prominent Leagues and enjoys a strong reputation among the soccer fans. Arsenal Group is a commercial organization which derives it major source of revenues from home fixtures, commercialization, broad casting and real estate development (Arsenal Holdings Plc, 2010). As an organization, it aims to prudently invest in the team, supporting staff and training facilities. At the same time its mega project of Emirates Stadium is evolving and they are ploughing money into the stadium so that it stays best in class and operates as a brand identity for Arsenal. Outstanding performance in the property business has led achieve Arsenal group an increased turnover of £379.9 million in 2010 compared to 2009 which was £313.3 million. This also resulted in an increased profit before tax of £55.96 million in 2010 which remained £45.51 in 2009 (Arsenal Holdings Plc, 2010). Although these figures are very influential for shareholders but they are heavily dependent on the accounting policies and standards used by the organization. The independent auditors reported that in their opinion the financial statements give a true and fair view of the state of the Group’s and the parent company’s affairs as for the year ended. Now let us analyze one aspect of the Annual report which pertains to the contract costs for the players and how they are treated in the annual report. The reporting framework that has been applied in the preparation of the financial statements was generally accepted United Kingdom Accounting Standards but we will analyze this aspect from the International Financial Reporting Standards. The Arsenal Club capitalizes the cost of player registration fees and amortizes over the contract life. However, they do not include any value for their players or “home grown” players. Football players are generally different from the common human resource that an organization possesses during its lifetime. Since every human capital is metaphorically an asset for the organization but it is not treated as an asset since it does not fulfill the accounting definition of asset. According to the definition of an asset, it is controlled by an entity and provides future economic benefits to the entity. To control an asset the organization should hold the power to obtain the future economic benefits which will be emanating from the resource or it should be able to restrict the access of that asset from others. The definition of the asset is fulfilled since Arsenal club holds control over the players through the legal right created between the club and players. These rights are derived from the ownership of the entity over the players, since the players are entitled to provide services to the club as per the terms of contract (Morrow, 1996). In addition to that, Arsenal Club expects future benefits stemming from these players since they will represent the club at the professional level and the club will earn its chunk of revenue through the fixtures which are played by the team players. Furthermore, it is intuitively appealing to think football players as an asset since they are the only item valuable to the club. These individuals have an earning power which makes them an asset (Morrow, 1996). As the Arsenal Club capitalizes the cost of player registration fees and amortizes over the contract life. This statement makes sense in the light of IAS 38 to an extent since this standard relates to the intangible assets. There has been a growing debate in the literature for accounting human assets as intangible assets. The IAS 38 states that an entity should recognize an intangible asset if only some specific criterions are met. According to the standard, an intangible asset is an identifiable monetary asset without any physical existence. To be identifiable, the asset must be separable from entity; it should be able to be transferred or sold to another entity. Or it should be protected by a legal right or agreement (IASB, 2010). There is no doubt that the human resources are an asset but can we recognize these football players as an intangible asset is a question of serious concern. Undoubtedly, we can recognize them as an intangible asset since football players are identifiable non-monetary assets. Since we have already proved that future economic benefits can be attributed from the football players due to the legal contract created between the Arsenal Club and the players, it is viable to consider them as intangible assets. The other criterion of identifiable is also met, since the club can separate the players by selling or exchanging them among each other. A player can be exchanged or transferred with another player but an individual player will perform his trade will make an incremental contribution to future economic benefits. The clubs can control all the registered players which are either acquired by the transfer market or “home grown” are contractually obliged to perform for the club to which they have signed contracts. Therefore, the clubs can acquire economic benefits and can restrict others from accessing those benefits. However, it can be argued that since some other employees such as teachers or project managers are hired on the basis of contracts so why they are not entitled for intangible assets. There are several reasons which makes the football or any other sport players different from the ordinary human capital. Firstly, they do not have any contractual right to resign or give in their notice. Secondly, they are capable of being sold in an active market. Home grown players are another category which can be thought of as an internally generated asset. These players are provided more of coaching and staffing and additional costs are associated with them. The club owning the right over its players through the employment of the player who provides its services can be considered similarly in the way as equipment delivers its technological expertise during its economic life. However, a different risk appetite can be associated with the level of this class of asset that’s why impairment losses are also accounted for such intangible assets. The second stage concerns with the recognition of intangible assets in the balance sheet. According to IAS 38, an intangible asset should only be recognized if they fulfill the definition of an intangible asset and the cost of that asset can be measured reliably. We can be assured that the cost of the football players can be measured reliably since a growing market exists for football players where they can be bought through auctions. Secondly, the cost of player registration fees can be amortized over the period since as the contract period lasts, the future economic benefits entitled from the players reduces since they will no more be available for the club unless the contract is extended or the terms are renegotiated between the players. Finally, IAS 38 requires that the intangible assets should be measured using cost model or revaluation model. The cost model requires carrying the intangible asset at its cost less any accumulated amortization and any accumulated impairment losses. Impairment losses arise due to the diminishing returns provided by the players as they are not able to deliver the value which they were expected to provide as deemed by the club during the time of agreement. The revaluation model on the other hand requires that the intangible asset should be carried at the revalued amount less any accumulated amortization and less any impairment losses. However, the revaluation model requires that an active market should exist where the player’s value can be fairly valued. Furthermore, this standard also demands that if an intangible asset is accounted for using the revaluation model, than all the other assets in its class should be revalued using the same model unless there is no active market for those categories of assets (IASC Foundation Education, 2010). An active market is a market where all the items traded in the market are homogeneous, buyers and sellers are readily available and prices are available to the public (World GAAP, 2009). The statement that Arsenal does not include any value for their players or “home grown” players makes sense if they are using the cost model since the cost model carries the intangible asset at the historical figure less any accumulated amortization and impairment losses. However, in the case if they are using the revaluation model than they should fairly review the market price of the players regularly. If a player is on high demand and has performed exceptionally well than the organization can report an increase in equity due to the increased value of the player. BLOG My learning experience from the course titled “Financial Reporting” has been one of the most valuable tools which have enhanced my knowledge of corporate accounting practices. Accounting is an evolving field and its standards are evolving with the new experiences and changing dynamics of different industries. We will be expecting changes in the future standards since new cases will emerge which will give rise to new standards. Financial statements are prepared from the accounting standards adopted by the organization which aim to provide information about the financial position, performances and changes in the financial position of the company which are useful to the stakeholders of the company. The financial statements should fulfill the underlying assumptions that are of accrual basis and going concern. It is important that a fair view of the organization is provided through standard accounting policies since the annual reports are a great tool for shareholders to analyze the company and make investments. Furthermore, a strong corporate governance will entail that shareholders are provided a fair value for the money that they are investing in the company since they can better predict the future from the fair past records presented by the organization. REFERENCE Arsenal Holdings Plc, 2010. Investor Relations., Available at: [Accessed 20 December 2010]. IASC Foundation Education 2010, IAS 38 Intangible Assets. Available at: < http://www.iasb.org/NR/rdonlyres/8A3C6720-AABE-4BE2-B776- BE51961AA0/0/IAS38.pdf]. [Accessed 20 December 2010]. International Accounting Standard Board (IASB), 2010. Framework, Available at: [Accessed 20 December 2010]. Morrow, S., 1996. Football Players as Human Assets. Measuremnt as the critical factor in Asset Recognition: A case study investigation. Journal of Human Resource Costing and Accounting, 1 (1), pp-95-97 World GAAP 2009, IAS 38 Intangible Assets, Available at: [Accessed 20 December 2010]. Read More