Much research has been conducted over the years to determine the status of intellectual capital (IC) reporting in developed economies, but there has been a relative lack of similar studies in the developing world. This was one factor that prompted my own project to analyse how businesses in Sri Lanka report their IC, which I hope will serve as a benchmark for future research into IC reporting in other developing nations.

Sri Lanka is a lower-middle-income developing country, but its adult literacy rate is 92 per cent--significantly higher than the world average of 77 per cent. The country holds a population of 18.8 million within its 62,705 square miles. Its gross domestic production is driven mainly by the service sector (53.1 per cent), followed by agriculture (21.2 per cent) and manufacturing (16.9 per cent).

Because there are no accounting standards and laws in Sri Lanka covering IC reporting, this practice is non-mandatory. Past studies have shown that the biggest companies in terms of market capitalisation are those that set the trend for such voluntary reporting, so I reviewed the 1998-99 annual reports of the top 30 companies listed on the Colombo Stock Exchange. Although I could have analysed other things, the annual reports represented the businesses' concerns in a compact and comprehensive way.

I modified a framework that had been adopted by the Australian Society of Certified Practising Accountants, the Society of Management Accountants of Canada and the International Federation of Accountants to record the codified qualitative and quantitative information contained in these reports. This framework had three major IC categories: internal capital (represented by intellectual property and infrastructure assets), external capital and human capital.

I codified both intellectual assets and liabilities, since together they represent IC. I analysed the qualitative information by the frequency with which it was mentioned and by the number of lines devoted to it. I performed the same exercise on the quantitative data--this time ignoring line counts because it's clearly meaningless to apply them to figures.

Previously, a team led by James Guthrie of Macquarie Graduate School of Management in Sydney had used such a framework as the basis for researching IC reporting by companies in Australia. My study expanded this framework to 45 items in total, featuring 10 internal capital, 10 external capital and 25 human capital items. The internal capital category includes items such as patents, trademarks, copyrights, corporate culture and information systems. Items that fall into the external capital category include brands, market share, customer satisfaction, collaborations and licensing agreements. Human capital items include employees' know-how, education, vocational qualifications, training programmes, trade union activity, compensation plans and share option schemes.

I anticipated the most important type of IC to be external capital. I also expected it to be reported more qualitatively than quantitatively, in accordance with the findings of Guthrie's team. I found that the most frequently mentioned IC category was indeed external capital. Many companies talk about human capital as the most important asset they have for sustainability, but few practice what they preach, and the firms in Sri Lanka were no different. The most unusual feature of the Sri Lankan annual reports compared with their Australian counterparts was that they featured employees mostly in photographs (which helped to account for the bigger line count for human capital items), followed by narratives. …