Internally generated brands: Nestlé’s hidden assets*

• Published date: 01 June 2023
• Author: Maryam Abdulla Al‐Asmakh
• Date: 01 June 2023
• DOI: http://doi.org/10.1111/jacf.12570

DOI: 10.1111/jacf.12570

ORIGINAL ARTICLE

Internally generated brands: Nestlé’s hidden assets*

Maryam Abdulla Al-Asmakh

College of Business & Economics, Qatar University, Doha,Qatar

Correspondence

Maryam Abdulla Al-Asmakh, Assistant Professor in International Accounting and Taxation,College of Business & Economics, Qatar University, Doha,Qatar.

Email: maryam.alasmakh@qu.edu.qa

INTRODUCTION: COVID-19 AND

INTANGIBLES

In the aftermath of COVID-19 pandemic, it has become apparent

that the most value-creating resources in business enterprises are

the invisible assets, the assets of the knowledge-based economy.1

These include nonfinancial assets: for example, patents, informa-

tion technology, and brands. Working remotely without offices to

minimize physical contact has confirmed that what truly allowed

organizations to survive through the crisis are not the physical

tangible assets of the industrial revolution (factories, machinery,

vehicle). Just as COVID-19 necessitated and accelerated innova-

tion in every surviving economic activity, it has shone a light on

the urgency of reforming how innovative intangible investments2

are accounted for. As today’s organizationsadapt to the “new nor-

mal,”3the accounting community must confront the limitation

of traditional historical-cost-based accounting, which have kept

their most valuable assets, especially home-grown brands, off the

balance sheet.

This essay offers a timely perspective on the “the thorny

debate” about the accounting treatment for internally created

intangibles4by employing a single company, Nestlé, a major

1The shift away from an industrial economy,based on hard assets, to a knowledge-based econ-

omy,based on intangible assets, has long been recognized in the literature. See, e.g., (Penrose,

N., and M. Moorhouse (1989), “The Valuation of Brands.” MarketingIntelligence and Plan-

ning, Vol.7, No. 11/12, pp. 30-33; Stewart, T.A. (1997), Intellectual Capital: The New Wealth

of Organization, Nicholas Brealey Publishing, London; Lev, B. (2001), Intangibles:Manage-

ment, Measurement and Reporting, Brookings InstitutionPress, Washington D.C.; Teece,D. J.

(2000), Managing Intellectual Capital: Organizational,Strategic, and Policy Dimensions,Oxford

University Press, Oxford; Wyatt, A., Z. Matolcsy and D. Stokes (2001), “Capitalization of

Intangibles — A Review of Current Practice and the Regulatory Framework.” Australian

Accounting Review 11(2): 22-38; Kaplan, R. S., and D. P. Norton. 2004. Strategy Maps: Con-

verting IntangibleA ssets into TangibleOutcomes, Harvard Business School Press, Boston; Bloom,

M. 2009. “Accountingfor Goodwill.” Aba cus 45(3): 379–389; Skinner,D. J. 2008. “Account-

ing for Intangibles — A Critical Review of PolicyRecommendations.” Accounting and Business

Research 38(3): 191–204; Lev,B., S. Radhakrishnan and W. Zhang. 2009. “Organization Cap-

ital.” Abacus 45(3): 275-298; Lev, B. 2019. “Ending the Accounting-for-Intangibles Status

Quo.” European Accounting Review 28(4): 713736.

2Lev (2001, p. 7) defines an intangible asset as “aclaim to future benefits that does not have a

physical or financial (stock or a bond) embodiment”.

3Barnes, S. J. 2020. “Information Management Researchand Practice in the Post-COVID-19

World.”International Journal of Information Management 55(December): 1–4.

4Arnold, J., D. A. Egginton, L. Kirkham, R. Macve, and K. Peasnell. 1992. Goodwill and

Other Intangibles: Theoretical Considerationsand Policy Issues,ICAEW,p.xii

branded food multinational enterprise. By looking at a real-

world example, this paper hopes to provide fresh inputs to

convince policy makers to reconsider the immediate expensing

of own-developed brands, the driving force behind corporate

survival during post-COVID-19 era. This paper explains how

long-lived brands, in the context of the food and household

products sector, have become key competitive assets respon-

sible for the survival of branded goods companies through

the COVID-19 crisis. It describes the harmful consequences

of the asymmetric accounting treatment for acquired intangi-

bles (capitalized on the balance sheet) compared with otherwise

similar or identical intangible assets created internally that are

expensed through the income statement. I then present the case

for treating internally generated brands as assets because they

have similar characteristics as physical and financial assets—

and acquired intangible assets– that comply with the IASB’s

Conceptual Framework of 2018. Finally, this paper concludes

with a call for urgently needed of accounting-for-intangibles

reform.

HIDDEN COMPETITIVE ASSETS DURING

THE OUTBREAK OF COVID-19

In response to COVID-19 pandemic, most countries experienced

periods of lockdown when supermarkets were the only retailers

remaining open.5Homeschooling and working-from-home

5Martin-Neuninger, R., and M. B. Ruby. 2020. “What Does Food Retail Research Tell us

About the Implications of Coronavirus (COVID-19) for Grocery Purchasing Habits?” Fron-

tiers in Psychology 11(June): 1–4; Theodoridis, P.K., and A. Kavoura. 2021. “The impact of

COVID-19 on Consumer Behavior: The Case of Greece.” in A. Kavoura,S. J. Havlovic

andN. Totskaya(ed.), Strategic Innovative Marketing and Tourism in the COVID-19Era:9th

ICSIMAT Conference2020, Springer International Publishing, Cham, 11–18.

*The idea behind this paper stems from an open-book exam to my students in the Inter-

national Accounting course in Spring 2020, when the semester unexpectedly switched online.

The students challenged IAS 38.63 requirement to expense legally protected trademarks. They

motivated me to do more researchon this controversial accounting topic. I am indebted to Pro-

fessor Christopher Nobes, Royal Hallway University of London, for his insight on fair value

and historical cost accounting. I am grateful to ProfessorKen Peasnell, Lancaster University,for

his comments about capitalizing home-grown brands and for granting permission to digitalize

the report of Arnold et al. (1992). I thank Ben Brewste, the Institute of Chartered Accoun-

tants in England, and Wales (ICAEW) library,for his swift e-mails. I thank Administration

J. Appl. Corp. Finance. 2023;35:73–77. © 2023 Cantillon & Mann.73wileyonlinelibrary.com/journal/jacf