Mental Arithmetic: Most Elements of a Business's Intellectual Capital Don't Find Their Way on to Its Balance Sheet, but the Lack of a Standard Evaluation Method Shouldn't Prevent Companies from Trying to Gauge Their Worth. Tony Wall Reports on Research into How Firms in Ireland Are Measuring Their Intangibles. (Finance Intellectual Capital)

Wall, Tony, Financial Management (UK)

Financial accounting professionals have spent the past decade debating how companies should report their intellectual capital (IC). Some people argue that many more of these intangible assets--beyond those associated with intellectual property such as patents--should appear on the balance sheet, because without them shareholders aren't aware of all the elements that contribute to the overall market value of their company.

The main argument against their inclusion is that no universally acceptable method of measuring them has yet been determined. Until such an agreement is reached, these assets--generally categorised as human capital, customer capital or organisational capital (see panel 1, below)--could appear at randomly selected valuations, thereby distorting the picture for investors.

Other people see the debate as far too narrow and feel that a lot of work can be done on the strategic management of IC to increase the value of any company.

IC therefore cannot be ignored and, while financial accountants may have to wait for regulatory guidance before these assets can appear on the balance sheet, it doesn't mean that the annual report can't be used as a medium for communicating how an organisation's IC is adding value. In Scandinavia--particularly Sweden--shareholders already receive a great deal of …

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Publication information: Article title: Mental Arithmetic: Most Elements of a Business's Intellectual Capital Don't Find Their Way on to Its Balance Sheet, but the Lack of a Standard Evaluation Method Shouldn't Prevent Companies from Trying to Gauge Their Worth. Tony Wall Reports on Research into How Firms in Ireland Are Measuring Their Intangibles. (Finance Intellectual Capital). Contributors: Wall, Tony - Author. Magazine title: Financial Management (UK). Publication date: December 2002. Page number: 28+. © 2009 Chartered Institute of Management Accountants (CIMA). COPYRIGHT 2002 Gale Group.

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