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Accounting and Business Research
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Introduction
Robert Hodgkinson a aExecut ive Direct or, Technical, The Inst it ut e of Chart ered Account ant s, England, Wales Published online: 04 Jan 2011.
To cite this article: Robert Hodgkinson (2008) Int roduct ion, Account ing and Business Research, 38: 3, 169-170, DOI: 10. 1080/ 00014788. 2008. 9663330
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Accounting and Business Research,Vol. 38. No. 3 2008 International Accounting Policy Forum. pp. 169-170 169
The five papers in this issue of International Accounting Policy Forum address different aspects of the question of intangibles – a highly controver-sial subject in recent decades.
The points on which there is no dispute are that intangibles are extremely important, that neverthe-less most intangibles do not appear in the balance sheet and that, with some exceptions, the minority of intangibles that do appear there are not reported at their current values. From this common starting-point people move on to arrive at widely differing conclusions.
In New Reporting Models for Business (2003),
one of the first reports published by the Institute of Chartered Accountants in England and Wales (ICAEW) in its Information for Better Markets campaign, we looked at some of the most prominent calls for major reform in business reporting. We noted that those who called for reform typically:
• asserted that there had been a tremendous growth in the importance of intangibles and that they were now the key drivers of business suc-cess;
• argued that intangibles’ absence from the bal-ance sheet was a fundamental weakness in fi-nancial reporting, which meant that investors were being seriously misled; and
• concluded that the answer lay in the provision by businesses of more non-financial, qualitative, and forward-looking information (although there were also some calls for reform to financial reporting).
Hence – and for other reasons that had nothing to do with intangibles – the calls for a new busi-ness reporting model that would tell busibusi-nesses what they should disclose.
There seemed to us to be a number of questions that deserved investigation. And so we commis-sioned the five papers that now appear here and which were first presented at the Information for Better Markets Conference held at the ICAEW in December 2007.
Without wishing to attempt a summary of the pa-pers, there are one or two key points in each of them that are worth mentioning as particularly rel-evant to the issues raised by those who call for a new reporting model.
Sudipta Basu and Gregory Waymire’s original
and intriguing paper shows that intangibles have always been – and always will be – of essential im-portance to economic activity and also that tangi-bles and intangitangi-bles are often inextricably linked. In addition, the paper provides a helpful analysis of the reasons why intangibles might have become more (or less) important.
Douglas Skinner’s paper provides a powerful defence of the current treatment of intangibles in the financial reporting model and explains why a balance sheet that attempted to incorporate all in-tangibles at current values would probably not pro-vide useful information for investors. Further, it shows why there are good reasons to be sceptical of claims that intangibles’ absence from the bal-ance sheet has led to serious – or indeed any – eco-nomic harm. It also sets out a cogent argument against trying to develop a detailed model for use-ful disclosures about intangibles.
Anne Wyatt’s paper is an extremely helpful re-view of the existing literature on value-relevance and intangibles. It demonstrates the almost incred-ible diversity of potentially relevant information on intangibles and, interestingly, draws attention to evidence that giving management discretion to re-port intangibles might facilitate more value-rele-vant disclosures.
In contrast to the preceding papers, Christopher Ittner’s concentrates on measuring intangibles for management purposes. It exposes important weak-nesses or limitations in much of the existing liter-ature on this topic and shows the need for great caution in making statements about the purported link between measuring intangibles and improved performance. Professor Ittner does not address whether all this has any implications for external reporting, but I believe his paper will prove to be very useful from that point of view as well.
Andrew Stark’s paper, as well as giving a valu-able overview of the issues and drawing attention to some of the UK evidence, also has important conclusions on the desirability or otherwise of im-posing a broad disclosure framework for intangi-bles. He notes that, at least in the UK, it is not clear that such a framework would be a useful addition to existing requirements.
Although there are substantial areas of agree-ment among the five papers published here, it would be foolish to imagine that the controversy about intangibles will now go away. Indeed, I am
Introduction
170 ACCOUNTING AND BUSINESS RESEARCH
pleased to see that Baruch Lev has contributed a rejoinder in this issue – and so to that extent the debate is not completely one-sided. There also re-main important questions, not addressed here, about the recognition and measurement of intangi-bles that are candidates for inclusion on the bal-ance sheet even under the existing financial reporting model.
All of the contributions to this publication – in-cluding the practitioner commentaries – will be most helpful to the ICAEW in our continuing work on the questions addressed in New Reporting Models for Business. And I have no doubt that our forthcoming follow-up report, Developments in
New Reporting Models, will draw extensively on
the material presented. I hope that this issue of
International Accounting Policy Forum will also
be of use to all those interested in the debate on in-tangibles and that it will stimulate further research. I am grateful to all the distinguished academic and practitioner contributors to this publication and, once again, to Pauline Weetman for her sup-port and hard work as editor. Finally, I must thank the ICAEW’s charitable trusts, which generously provided funding to support the conference last December and the preparation of these academic papers, and the publishers, CCH, who have now assumed responsibility for financing the publica-tion.
Robert Hodgkinson
Executive Director, Technical
The Institute of Chartered Accountants in England and Wales
March 2008
