E IC Accounting by Nigel
Transcript of E IC Accounting by Nigel
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Developed for
Confidential, not to be disclosed without written
approval of the author(s)
IC AccountingOutlining the Principles of IC Accounting in order toidentify the areas for innovation and sustainable growth
Nigel W. Dawes
Wednesday 7th of November 2007
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Why would anyone want to increase their Balance Sheet?
There are many reasons
Litigation
Transfer Pricing
Mergers
Financing
Sale/Acquisition
Joint Venture
Capital Markets
Purchase Price Allocation (PPA)
Enforcement
Bankruptcy
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The importance of Intellectual Capital and Intangible Assets, theimmaterial value of companies such as relationships with businesspartners, brand awareness (customer/partner capital) and the abilityto innovate (e.g. R&D capital), but also the ability to multiplyknowledge within the organization (structural capital), has greatly
increased in the last two decades. Financial accounting and traditional management instruments
are not able to capture these new values and report on them.
What is needed is an enhanced concept for corporate reportingand new management tools that will enable companies to managethese new drivers in a systematic way.
This should enhance the capability of investors to better
understand the value and the potential of the hidden intellectualresources of an enterprise in orderto make better judgementsabout its capabilities to perform in the future.
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IAS 36 IAS 38
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Intangible Assets examples
Computer Software
Patents
Trademarks
Brand Names
Copyrights
Motion Picture Films
Customer Lists
Mortgage Service Rights
Licenses
Import Quotas
Franchises
Concessions
Marketing Rights
Customer/Supplier
relationships/Contracts
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Intellectual Capital Calculation 4 Leaf Model
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IAS 38 - Important Factors - Intangibles
Key Definitions:
1. Identifiable Non monetary asset without physical substance
2. Definite Life** (Amortization) or Indefinite Life (No Amortization)
3. Controlled by the Enterprise (acquired or self created)
4. Expectation of Future Economic Benefits (based upon
reasonable & supportive assumptions)
** Life determined by:
Legal
Contractual
Judicial
AnalyticalEconomic
PhysicalTechnological
Functional
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Intellectual Capital: (Market Value Book Value)?
The value of any organization is the sum of (1) the physical
tangible and financial capital which one finds on the balance
sheet of a company and (2) the intangible assets of a
company which are usually described as goodwill on thebalance sheet.
Sometimes IC is interpreted as the difference between the
book value i.e. the historic value of the assets of a company
not yet amortized and the market value which equals the
perceived present value of the future cash flow of a company.
But there are so many different valuations ..
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Intellectual Capital: (Market Value Book Value)?
Fair Market Value
Insurable Value
Collateral Value
Ad Valorem Value
Acquisition Value
Usage Value
Fair Value (IASB)Investment Value
Market Value
Forced Sale Value
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The steps to value ..
1. Data Collection
2. Valuation & Approaches
3. Economic Life Analysis4. Value Method Conclusion
5. Reporting
6. Set Future Valuation Dates (some Goodwill Mandatory)
How to achieve Intellectual Capital Calculations?
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Traditional (Financial) Balance Sheet
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Intellectual Capital Balance Sheet
Assets are either Internal or External and vary from highly
structured to not structured at all
Assets are either owned by the company (explicit) or
borrowed from 3rd parties: staff, customers, alliances,
partners, public authorities
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IC Balance Sheet: follows the structure logic of the Financial BS
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Consolidated Balance Sheet
Consolidated Balance Sheet shows the total value of the enterprise, combining financial with ICelements
The assets side gives a clear insight into the relative values of ALL assets, offering THE ultimatemanagement tool to managers
The liabilities side shows how assets are financed, i.e. who owns the assets
Balance Sheet analytics can be developed in line with BS analysis concepts which already existfor the classical Balance Sheet
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The effects of adding the Intellectual Capital
Assets to a Traditional Balance Sheet?
In our experience the Traditional BalanceSheet is leveraged between
55 1010 timestimes
When IC is applied.
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CONTACT COORDINATES
AREOPA
Koningin Astridlaan 201 B5
B- 2800 MECHELEN
BELGIUM
Tel.: +32 (0)15 433.217
Fax.: +32 (0)15 411.170
www.areopa.com
Ludo PYIS
Mobile: +32 (0)495 [email protected]
Nigel W. Dawes
Mobile: + 66 (0)81 0044116