Accounting for Intangible Assets and Reporting ... - Icabr.com

Sullivan (2000, p. 228) submits a working definition of intellectual capita in the followingwording: “…knowledge that can be converted into profit“. In his opinion intellectualcapital consists of two components - human capital and intellectual assets.Baruch Lev in his famous work “Intangibles – Management, Measurement andReporting” of 2000 states on page 5: “An intangible asset is a claim to future benefitsthat does not have a physical or financial embodiment. A patent, a brand, and a uniqueorganizational structure (for example, an Internet-based supply chain) that generate costsavings are intangible assets“.According to Sweiby (1997, p. 18) “the difference between the marked value of apublicly held company and its official net book value is the value of its intangible assets.In most companies, the value of intagible assets exceeds the value of tangible assets.”Intangible assets are also often defined by a list of their assumed properties, byclassification or sorting, which I will deal with in the following part of my article.Like in the case of the basic terms and definitions the authors of publications about IA/IChave not yet reached too much agreement about their sorting, classification orcategorisation. All classifications in effect remain very abstract, thus not offering a realinstrument for management and use of the intangible assets by corporate managers.A classification which – guessing from the number of quotations – has more significantlyinfluenced other researchers was published in 1997 by L. Edvinsson. This classificationis the simplest, and only consists of two basic categories: Human capital andOrganisational, or Structural capital. Some publications do not provide any classificationat all, or state that a classification would be very difficult.Other authors, with Sweiby, 1997, being one of the most often mentioned and quoted,divide intangible assets to three basic groups or levels: employee competence, internalstructure and external structure. Studies analysing publications on intangible assetsmostly deal with works by American and Western European authors.There are also two more detailed and more specified classifications, which are quiteexceptional in this area:• The first is the basic categorisation developed by the American FinancialAccounting Standard Board for the purpose of accounting reporting and alreadymentioned in the first part of the article, in the section on the accountingstatement systems. This categorisation distinguishes seven basic categories ofintangible assets based on: technologies, customers, market, employees,contracts, organisation and company status,• The second classification by the German working group investigating intangibleassets in accounting for Schmalebach Society includes human, customer,supplier, investment, process, allocation and innovation capital (Kaufmann,Schneider, 2004).2.2 Approaches to Appreciation and Reporting of Intangible Assets andIntellectual CapitalThe wide definition of the basic terms and classification shows the large variability in theopinions of researchers on appreciation and reporting of intangible assets. A survey firstpublished in 1997 by Sweiby and several times updated uses the essential classificationinto four basic groups.Survey of types of appreciations of intangible assets:• Direct Intellectual Capital methods (DIC) are based on the assumption that weare able to recognise the individual basic components which are then not difficultto appreciate individually or in aggregate,