Michael D. Moberly January 17, 2011
In a world in which 65+% of most company’s value, sources of revenue, and and ‘building blocks’ for development and growth evolve directly from intangible assets, it’s fair to say that conventional financial statements and balance sheets, wherein intangibles largely go unreported, under-valued, and otherwise, unaccounted for, do not provide a complete picture of a company’s soundness, its value, or its strategic and competitive health and potential.
Respectfully, accounting is largely a mathematical language that allows companies to communicate about their respective business performance in a standardized manner that is largely free from cultural (or other less objective) connotations by adhering to codes of officially sanctioned standards and laws. Of course, absent that, some believe subjectivity would creep into accountancy with one outcome being that ‘too much gray area’ would be injected into business assessments, perceptions, and understandings.
So yes, accounting language and systems do adhere to such standards and laws in which (more tangible) factors of production and performance are dominant. But, should they continue to be so, inasmuch as such accounting rules underplay, if not ignore, the evolution of company’s internally developed value, i.e., knowledge, IP, and other intangibles, which have become so integral to business operations as well as the development, framing, and execution of (business) transactions.
So, my advocacy in this post is to respectfully communicate the economic fact – reality that we’re literally in the midst of a knowledge, some say, intangible asset-based based economy, in which, factually speaking, steadily rising percentages of company value, revenue, development, and growth lie solely with intangible assets. However, these ‘one size fit’s all’ accounting parameters, leaves little opportunity, and thus less inclination for management teams and boards to engage their intangibles in productive ways, let alone start using language that reflects the influence of intangible assets.
And, therein lies the basis for many of the current challenges between accountants and advocates of fuller utilization and acknowledgement of intangible assets insofar as mitigating expressions of skepticism and/or dismissiveness about the relevance and contributory value of intangibles. Today though, there is a growing necessity to find common ground to converge both (accounting) language and systems so company management teams and boards can literally put their intangible assets in play, and ultimately, to better use.
The ‘Business IP and Intangible Asset Blog’ is researched and written by Michael D. Moberly, president and founder of Knowledge Protection Strategies – http://kpstrat.com. The intent of Mr. Moberly’s blog is to provide insights and perspective to aid in a cross-disciplinary approach for identifying, assessing, valuing, protecting, utilizing, and extracting value from intangible assets. Your comments regarding my blog posts are welcome at firstname.lastname@example.org.
(This post was adapted by Mr. Moberly from the work of Professor Roya Ghafele and her article titled ‘Accounting for IP?’ recently published in the Journal of Intellectual Property Law and Practice and inspired by the perspectives of Gabe Fried and Jim Catty, members of the Intangible Asset Finance Society.)