Making intangibles tangible: An emerging business issue

Abstract

Historically, managers of internally grown intangible assets have often been in conflict with the financial managers of corporations on how to account for spending on these assets in budgets, because although potential return can be significant, it has no recognised value on the balance sheet. Consequently, accountability has been based not on mutually agreed-upon goals such as value creation and return on investment but instead on often arbitrary and less meaningful achievements and measures. More recently, the problem of valuing intangible assets during mergers has been in the media spotlight because of spectacular write-downs amounting to tens of billions of dollars by some of the largest and most sophisticated corporations, which had miscalculated and mismanaged the intangible assets they acquired. Given that intangible assets are material to an enterprise, how can they be better measured, valued and managed? The ultimate goal is to develop a better system of accountability without necessarily changing generally accepted accounting principles. To this end, the theory of intangible capital for managing intangible assets for value creation is introduced.