Challenging Measures for IC.

• Author: Jenkins, Edmund
• Position: Intellectual capital - Brief Article

Measurement, accounting and reporting practices related to intellectual capital, or intangible assets -- due for sweeping changes -- are being actively pursued by several constituencies from the business, financial and academic communities. While there is already a great deal of voluntary disclosure, the Financial Accounting Standards Board acknowledges the need for change and has several projects in various stages on its agenda. Sources from around the world are also studying and reporting results. While it'll take time to actually implement changes, there's much activity and information sharing in these areas.

It's a curious twist to the adage what gets measured gels managed. This concept, along with management experience in the Knowledge Age, may be driving the trend to change what are widely viewed as outmoded accounting and reporting practices. As the global landscape has shifted from a manufacturing to a knowledge-based economy, it's no secret that accounting practices haven't kept up. Unless intangible assets are valued due to a merger or acquisition, there are simply no adequate ways to account for or include them in the standard balance sheet, a lapse that many believe is counter to the interests of investors and analysts.

"Few would argue that information about intangible assets is not relevant, but many question whether those items are measurable, " said Edmund L. Jenkins, Chairman of the FASB. "In this context, measurability means more than simply 'how much,'" he added. Jenkins' remarks were from his presentation at "Advances in the Measurement of Intangible (Intellectual) Capital," the fourth annual conference, presented by The Vincent C. Ross Institute of Accounting Research and The Intangibles Research Project at the Stern School of Business at New York University and sponsored by PricewaterhouseCoopers. The conference drew more than 320 participants from around the world.

Jenkins said that while the economy of 2001 is fundamentally different from years past, traditional financial statements do not capture -- and may not be able to capture -- the value drivers that dominate the New Economy. He conceded that while accounting bodies, standard-setters, academics and government regulators in Europe and most of the English-speaking countries have conducted studies and issued reports, to date there has been little change in financial reporting. To the question of whether companies and accounting standard setters can improve...