Richard McLaughlin Consulting

Accountancy perspectives

Market valuations of many businesses, especially computer and internet companies, show dramatic premiums over net asset value. This is prompting an increasing level of debate in the accountancy and regulatory world, particularly in the USA, about the treatment of intangibles. "In the financial accounting role, the accountant is torn between recording a verifiable figure and producing relevant statements" (Booth).

Accounting goodwill is the excess of market value over net assets, which in turn equates to our definition of intellectual capital. But internally generated goodwill cannot be recognised in financial accounts. At present, accounting treatments for R&D, patents and brands are becoming available, but not for the less easily verified elements of intellectual capital (Sutton). 

The accountancy profession recognises that this is an emerging issue, that no single approach is universally applicable, and that at present guidelines should not be imposed from outside (Batchelor). Equally, there is widespread acceptance in the profession that IC assessment can be valuable, not as a replacement for conventional financial reporting, but alongside it. The Institute of Chartered Accountants has published constructive overviews (Dzinkowski, Vance).