• Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month

The importance of intangibles to organisations and the complexity of recording these in the financial accounts.

Extracts from this document...

Introduction

'The concepts and conventions of accounting provide very clear guidelines for the accounting of assets within the balance sheet'. Knowledge is becoming the new engine of corporate development with fewer companies relying heavily on tangible assets such as machinery and buildings to measure their value. Successful companies are more inclined to invest heavily in their employees and knowledge base, which prompts the question, How much are they really worth?. Intangible assets such as knowledge and patents are often over looked in company accounts whilst more forward thinking organisations have realised that these are an integral part of their business. Historically the failure to include intangible assets in financial accounts has fuelled the confusion as to their precise description. Henderson and Peirson 2002 described intangible assets as 'rights rather than objects'. The International Accounting Standards (IAS) defines an intangible assets as an 'identifiable non-monetary asset without physical substance'. It would seem reasonable to expect a degree of inconsistency with regard to their treatment in financial accounts especially in light of the above definitions. The article from 'Accounting' magazine mentions the vast sums of money (£1m) ...read more.

Middle

Critics have often blamed the inability of many organisations to submit transparent accounts for the spectacular market failures over the last few years (Holland 2002). So why are intangible assets and intellectual capital so hard to measure in company financials if they are so important to the future success of organisations. Accounts were traditionally designed to measure tangible items such as machinery and buildings and secondly some intangibles are much harder to measure than others. Companies such as the pharmaceutical giant, GSK as mentioned in the case study place considerable value on innovation and market differentiation, but what is important to one company may be worthless to another. This creates another problem for the finance managers as how can you place a value on creativity. Intangible assets can be separated into Human capital, Relational capital and Organisational capital, example of each are shown below: Human capital * Know-how * Education * Qualifications * Work related knowledge Relational capital * Brands * Customers loyalty * Channels * Company names * Company logos Organisational capital * Patents * Copyrights * Design rights * Trade secrets As mentioned earlier in this discussion the financial reporting for intangible assets ...read more.

Conclusion

The ASB provided guidance in January 2003 for the contents of the OFR's and stipulated that it should include commentary on the following: * Corporate reputation * Intellectual capital * Licenses * R&D * Trademarks and copright * Customer relations * Market position and dominance (CIMA website) This discussion has focused on the importance of intangibles to organisations and highlighted the complexity of recording these in the financial accounts, as large investments in intangibles don't appear as positive assets in traditional accounting methods. The comments of one senior accountant (Nick Winters, PKF 'Accounting Magazine') shone much sceptism on how the inclusion of intangible would actually work in practice as the 'balance sheet would be jumping up and down all over the place'. He concludes that despite these problems 'it would be ridiculous for a business with good ideas not to put them down in the balance sheet, but in practice it is much more difficult'. It is highly likely that a recognised model for accurately recording the value of intangibles will take a long time to develop but it extremely important that organisations continue to experiment with different approaches as modern day investors require a much higher degree of transparency. ...read more.

The above preview is unformatted text

This student written piece of work is one of many that can be found in our University Degree Accounting section.

Found what you're looking for?

  • Start learning 29% faster today
  • 150,000+ documents available
  • Just £6.99 a month

Not the one? Search for your essay title...
  • Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month

See related essaysSee related essays

Related University Degree Accounting essays

  1. This is the financial report on the PepsiCo, Inc. In the following report we ...

    (256) (167) Interest income............................................................ 173 159 74 Income from Continuing Operations before Income Taxes......... 6,989 5,922 5,259 Provision for Income Taxes............................................. 1,347 2,304 1,372 Income from Continuing Operations.................................... 5,642 4,078 4,174 Tax Benefit from Discontinued Operations........................... - - 38 Net Income.................................................................

  2. An Analysis Of harmonization issues of accounting standards

    100% and at very end abnormal influence which is higher than 100%. Chapter 4 "Findings and Results" - "An Empirical Analysis" 4.1 Differences between the indicators Of Financial Information One of the most important financial information is the 'Net Profit' indicator for evaluating the financial information of the companies which are listed.

  1. Compare the differences between a Sole Trader, a Partnership and a Limited Company when ...

    receive interest of 5%, this is why many partnership agreements agree on a different rate of interest > Interest on current accounts - a partnership agreement may outline the interest that is to be allowed on the balance of a partner's current account this will be paid to the partner

  2. Accounting report managment accounting

    * What are the disadvantages of the breakeven? The disadvantages of breakeven is: * Breakeven calculations are not accurate. You might not sell everything that you are aiming for. Breakeven is used to give businesses an idea if they are going to be on loss or profit.

  1. The Importance of Communication in Accounting. Todays accountant, especially within the managerial accounting realm, ...

    Exhibit 1 The following quote, received from one the of study respondents, also stresses the importance of communication for success in the field of accounting: "It is real important that accountants or finance people, when you get into the numbers, to be able to take a spreadsheet that has a

  2. Case Study Granny Goggins Auditing Firm

    requires audit reports to include an expanded statement of auditors' responsibilities and the title of the report to include the word independent.' (ACCA Audit and Internal Review 2005) This International Standard for Auditing sets out the basis of the audit report.

  1. Final Accounts

    Reducing balance depreciation - this method is slightly more complicated than the straight line method. This method assumes that an asset loses more value at an early stage in its lifetime. This means that a set depreciation rate is used, e.g.

  2. Analysis Project, I have to decide to make a financial and business comparison ...

    Under the tough economic conditions, its continued investment in price, promotions with universal appeal, and wide customer based??? gave it a platform to continue its progress. Sainsburyâs Bank contributed a £4m share in underlying post tax profit as compared to £3m loss in 2007/08 because of strong cost management, lower bad debt charges, and continued growth in investment.

  • Over 160,000 pieces
    of student written work
  • Annotated by
    experienced teachers
  • Ideas and feedback to
    improve your own work