INTHEBLACK February 2022 - Magazine - Page 42
F E AT U R E
// I N T E L L E C T U A L P R O P E R T Y
RECORDING INTANGIBLES
Keoy Soo Earn FCPA, regional managing partner
for the financial advisory practice at Deloitte
South-East Asia, says the growth in the overall
value of intangible assets has been particularly
prominent across the technology sector as we progress
towards knowledge-based economies with greater
dependency on intangible assets.
“A company that has gone through an acquisition
will have it on their books, while a company that
has grown organically will not have it on their
books,” he says.
“The accounting standards don’t really recognise
internally generated intangible assets.
“For example, in Coca-Cola’s books, the Coke
brand is not recognised as an intangible asset.
Likewise, at Pepsi, Pepsi’s brand is not recognised.
“But if Coke acquired Pepsi, then the value
of Pepsi’s brand would appear in Coca-Cola’s
consolidated books. The Coke brand would still
not be there.”
Soo Earn says the financial statements in company
annual reports, therefore, don’t give real visibility
over the value of intangible assets.
“You cannot increase the fair value of intangible
assets after an acquisition.
“It is quite difficult to understand, especially if you
don’t have visibility on what the business has gone
through – whether it’s organic growth or inorganic
growth. One is on the books, and one is not.
“We say, price is what you pay, and value is what
you get after you pay the price.”
THE CHALLENGE OF VALUATIONS
Ian Mackintosh FCPA, former vice chair of the
International Accounting Standards Board, says
that when a business takeover occurs, the acquirer
needs to work out what intangible assets have been
purchased and what has been paid for them.
“But the real difficulty in all of it is getting a
valuation. The standard-setters, in dealing with
42 ITB February 2022
“THE ISSUE THAT
I SEE WITH THE
TRADITIONAL
BALANCE SHEET
APPROACH TO IP
IS THAT, DUE TO
ACCOUNTING
STANDARDS, IT
IS NOT EASY TO
RECOGNISE R&D
AND PUT IT ON
THE BOOKS
UNTIL IT’S
SOLD AND
RECOGNISED
AS PART OF
THE GOODWILL.”
JACK SHAN,
DAVIES COLLISON CAVE
this, are really worried about manipulation, and that
people are claiming figures that aren’t at all realistic.”
Mackintosh says another issue revolves around
companies generating their own intangible assets
through research and development, but these can’t
be capitalised on their accounts.
He uses an example of pharmaceutical companies
working on the development of medicines.
“As you go, you’re not really sure whether it’s going
to work or not and be worth anything or nothing, and
if it does work, how much it’s going to be worth.
“There’s lots of suggestions around that – maybe you
should be able to capitalise that sort of expenditure,
then write it off if it doesn’t work.
“Then there’s suggestions that you should be able to
separate expenditure for work undertaken for current
activities and for future growth, which can be hard to
define and measure.”
Mackintosh says intangible assets should be itemised
on a company’s balance sheet in the notes to its
accounts, “but it’s a lot of work, and there’s a lot of
debate about how useful the information is at the end
of the day.
“When you take over a company, you might use their
list of clients. What’s that worth, and how long is it going
to last? They are really difficult questions to answer.”