For Intangible Assets, Is Integrated Reporting the Answer?

Financial reporting of intangible assets hasn’t kept up with their trillion dollar market value growth, according to a panel discussion at American Accounting Association conference in New York Aug. 8.

Loosely put, intangible assets range from intellectual property, customer relationships, and brand names to other “non-hard” assets, that add value to a company. 

Much of the value of intangible assets however isn’t included in corporate balance sheets and there is no consensus that they should be, the panel discussion indicated.

One panelist, Bob Laux, a senior executive at Microsoft Corp., raised as a potential financial reporting solution: integrated reporting and disclosure whereby a company talks about its strategy and what resources they have in those strategies.

Laux pointed to the steady trending up of such assets in market value.  In 1975, 17 percent of the market value of Standard & Poor’s 500 companies was made up of intangible assets said Laux, citing an Ocean Tomo study.  In 2015, the same study found 84 percent of market value was made up of intangible assets, he said.

Beyond Financial Terms.

The argument for integrated reporting stems from the premise of value beyond financial terms. Integrated reporting delves into sustainability issues that give a broader picture of a firm.  

For example some firms’ involvement with environmental or social issues or focus on creating a quality work environment for its employees, one practitioner told Bloomberg BNA Aug. 16. 

Integrated reporting enables firms to show off those types of “do good” initiatives and so doing reap financial benefits and long term growth, the practitioner said.

Intangible assets seem to fit the “value beyond financial terms” context.

FASB eyeing for Improvements.

The accounting for intangible assets, however, is a contentious issue. It is a topic the Financial Accounting Standards Board has addressed and made improvements to several times.

It has again made it onto FASB’s radar.  In an “invitation to comment” FASB issued Aug. 4, the board said it is seeking feedback about whether it should add improvements for those rules to its future standard setting agenda.

“FASB has examined and made improvements to the accounting for intangible assets several times,” the paper states.
“Each time, FASB has learned that stakeholders have diverse views about what intangible assets should be recognized on the balance sheet. Equally important, stakeholders also have diverse views about how recognized intangible assets should be measured--for example, at amortized cost, fair value, or some other basis,” the paper states. Continue the discussion on intangible assets at Bloomberg BNA Accounting LinkedIn group.