Trends in intangible assets
Investments in industrialised countries tend to be shifting away from traditional areas of physical assets towards more intangible/knowledge based capital.
Trends of investment in intangibles have been stable, even during the recent economic crisis
Intangibles are found to be vital for productivity and economic growth – in the EU-15 the contribution of total intangible assets to output growth is between one and three times as high as the contribution from tangible assets.
The stock market values the social-networking company [Facebook] at nearly $320 billion. As of Dec. 31, its assets minus liabilities totaled $44.2 billion. The difference between the two could serve as a proxy for the value of Facebook’s vast troves of user data, the algorithms it creates to mine that data and its brand.
For example, employee training looks like a cost in the short-term, but if it leads to process quality improvements, which in turn improves customer satisfaction, you’re eventually going to see the needle move on revenues, market shares and elsewhere.
The problem is clear: although the evidence suggests that intangible assets are hugely valuable to organisations, it is hard to directly measure this value, especially when offset against measurable costs that are tracked in traditional financial reporting.
This means that many organisations remain completely unaware of the value of their intangibles, leading in turn to sub-par business strategies and a failure to invest in assets with huge value potentials.
An accounting paradigm shift
A new approach to intangible asset valuation
Accountancy is a toolkit. It should allow organisations to understand, steward, and compare the value of their property, or assets. If, as research suggests, less than 20% of organisation’s value today is found in tangible assets, then accounting that focuses only on tangibles fails entirely at its purpose.