Intangibles and Research - an Overview with a Specific Focus On the Uk: Plus Ça Change, Plus C'est La Même Chose

Summary

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There were four papers presented at the 2007 Information for Better Markets Conference on Intangibles and Research. Basu and Waymire (2008) express extreme skepticism as to whether balance sheet recognition of intangibles is possible. Their argument, at least in part, is that intangibles are not separable from tangible assets. Overall, the contents of the four papers suggest little reason to fundamentally change recognition practices, although arguments for small changes at the margin could be made. It is illuminating to consider the history of accounting for R&D expenditures in the UK. Hope and Gray (1982) provide an illustration of the deliberations surrounding the introduction of SSAP 13 Accounting for Research and Development. Finally, Akbar and Stark (2003) provide the most recent and comprehensive evidence for the UK. Like Stark and Thomas (1998), the focus of this paper is not on the value relevance of R&D expense. It would be difficult, based upon the UK evidence available, to say that the current combinations of various accounting regulations plus mandatory/voluntary disclosure mechanisms lead to enormous inefficiencies in the UK, or elsewhere.

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Intangibles and Research - an Overview with a Specific Focus On the Uk: Plus Ça Change, Plus C'est La Même Chose

1. Introduction

There were four papers presented at the 2007 Information for Better Markets Conference on Intangibles and Research. Basu and Waymire (2008) express extreme scepticism as to whether balance sheet recognition of intangibles is possible. Their argument, at least in part, is that intangibles are not separable from tangible assets. Further, the value of intangible assets, whether singly or in combination, is best judged by emphasising the forecasting of future profit streams, as opposed to explicit balance sheet recognition. As stated by the authors, '[v]aluing accounting intangibles on a stand-alone basis requires heroic assumptions about separability, highly uncertain estimates of ambiguous future benefits, and arbitrary allocations of jointly produced income.' Further, intangible assets, when assessed at the macro-level for countries, are linked to government policies with respect to activities such as education and, as a consequence, it is difficult to identify them with specific firms.

Skinner (2008) evaluates policy proposals and concludes that private incentives to disclose information about intangibles, over and above that disclosed in the US, are the best solution, with regulators, at best, providing guidance as to the forms that these disclosures could take. This is based upon an analysis that critically evaluates whether current US accounting can be associated with the claimed difficulties in the US (e.g. under investment, difficulties in raising capital, etc., primarily related to technology firms and research and development (R&D)) - he argues it cannot.

Wyatt (2008) provides an extremely comprehensive analysis of the associations between financial and non-financial information on various types of intangibles and market value or returns (a real boon to academics!) - the work surveyed is global, although much of it emanates from the US. Whilst making recommendations for future research, she suggests, amongst others, that regulators might do better if more discretion were given to managers to recognise intangible assets (as in the UK and Australia prior to IAS adoption). She also suggests that disclosures could be enhanced to include more broad categories of expenditure.

Ittner (2008) con...

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