Intangible assets should be valued
and put on the balance sheet for better financial reporting. Displaying intangible assets on the
balance sheet would be valuable for two main reasons. First, reporting intangible
assets would be more accurate in representing the true economic value of a
company. Second, investors would be able to make wiser investment decisions.
The
purpose of financial accounting and reporting is to provide accurate
information to help rational people make wise business decisions. Some would
estimate that nearly up to half of public companies’ value is tied up in
intangible assets, which aren’t currently being reported under U. S. GAAP
standards. Reporting intangibles such as brands, human brainpower, and
intellectual property would certainly help display the true economic value of a
public company. For example, the brainpower of Google employees add to the
value of the company, and placing that information on the financial reports
would help represent the true value more accurately (Foster, 2006, para. 11).
The
representation of intangible assets would help investors make wiser investment
decisions. Having the true economic value to compare to other companies will
help in decision making for investors worldwide. Baruch Lev, an accounting
professor at New York University, said that current reporting practices “fail
to provide adequate guidance to managers, investors, or public policymakers” (Aston,
2002, para. 2).
If we could find a way to
accurately and consistently report intangible assets, financial reports would
better represent the true economic value of a company and investors would be
able to make wiser financial decisions.
References
Aston, A. (2002,
August 26). Brainpower on the balance sheet. BusinessWeek, 110-111.
Foster, B. P.,
Fletcher, R., & Stout, W. D. (2006). Valuing intangible assets. The CPA Journal. Retrieved from http://www.nysscpa.org/cpajournal/2003/1003/
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