e ic accounting by nigel

8/2/2019 E IC Accounting by Nigel

1/17

11/7/2007 1

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


2/17

11/7/2007 2


3/17

11/7/2007 3

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


4/17

11/7/2007 4

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.


5/17

11/7/2007 5

IAS 36 IAS 38


6/17

11/7/2007 6

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


7/17

11/7/2007 7

Intellectual Capital Calculation 4 Leaf Model


8/17

11/7/2007 8

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


9/17

11/7/2007 9

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 ..


10/17

11/7/2007 10

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


11/17

11/7/2007 11

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?


12/17

11/7/2007 12

Traditional (Financial) Balance Sheet


13/17

11/7/2007 13

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


14/17

11/7/2007 14

IC Balance Sheet: follows the structure logic of the Financial BS


15/17

11/7/2007 15

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


16/17

11/7/2007 16

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.


17/17

11/7/2007 17

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

[email protected]

Ludo PYIS

Mobile: +32 (0)495 [email protected]

Nigel W. Dawes

Mobile: + 66 (0)81 0044116

[email protected]

e ic accounting by nigel

Documents