INTHEBLACK February 2022 - Magazine - Page 43
says not valuing IP potentially risks missing out on
the real value of assets.
“The opportunity is to have a clearer understanding
behind the drivers of value, which can then be
reflected in the business strategy.”
THE LEGAL PERSPECTIVE
Jack Shan, principal patent attorney at law firm Davies
Collison Cave, says patents, trademarks and other
types of intellectual property are critical components
of a business’s intangible assets.
He points out that intangible assets now account
for about 90 per cent of the value of the entities
within the S&P 500 Index of US-listed companies.
“It’s important for companies to keep a register of
their intangible assets. The issue that I see with the
traditional balance sheet approach to IP is that, due to
accounting standards, it’s not easy to recognise R&D
and put it on the books until it’s sold and recognised
as part of the goodwill.
“A significant share of a company’s value resides
in intangible assets. So, it’s important to identify and
manage these assets well.
“But there is very little correlation between the cost
of developing something and its ultimate value. You
could develop something for very little, and then it
could be highly valuable. Or you could spend millions
of dollars on an idea that nobody wants.”
Shan says that is where it is important to involve
registered patent attorneys and trademark attorneys
as part of the due diligence process, to gain a better
understanding of the underlying assets’ value. Shan
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THE INTANGIBLES REPORTING GAP
The University of Melbourne has recently conducted
an investigation into disclosures of unrecognised
intangible assets by Tier 1 Australian reporting
entities for the Australian Accounting Standards
Board.
It found that entities are generally not making
voluntary disclosures of unrecognised intangibles,
although there are more disclosures from sectors in
which intangibles typically play a significant role
in entity values, such as the pharmaceutical and
information technology sectors.
Professor Michael Davern FCPA, chair of
accounting and business information systems at the
University of Melbourne, led the research team that
published its findings in March 2021 in the report
Disclosing Unrecognized Intangibles.
“We did quite an extensive search within Australia
and found that there’s not much that’s being
voluntarily disclosed in the way of unrecognised
intangibles, which is very interesting,” Davern says.
“It’s OK when you’re recognising IP from an
external acquisition point of view. It’s when they are
internally generated things that they become a lot
more problematic.
“How do you distinguish between research and
development, which is creating valuable IP? The
distinction can be subtle, and changes whether you
can expense it or capitalise it.
“This is an area of longstanding debate in accounting,
which I don’t think is ever going to be fully resolved.”
Davern says recognising intellectual property can
sometimes also be a sensitive issue because companies
don’t want to disclose what they are undertaking to the
market because of the competitive nature of their IP.
“If you’re doing research, do you want everyone to
know about that research and what the prospects are?
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