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Time to end illogical intangible rules
10 July 2017
The disclosure of intangible assets remains disappointingly low, with $35trn (or almost three-quarters) of global intangible value not reflected in 2016 balance sheets, says Brand Finance.
It explained that insufficient reporting of intangible assets leads to a host of problems for analysts, investors, boards and shareholders. With little information on particular assets, analysts’ assessments are not as accurate as they could be, forcing investors, in effect, to act with one eye closed.
Brand Finance said this has negative effects on share price volatility, affecting the stability and sustainability of finance.
Finally, the lack of real information about the true value of assets leaves boards and shareholders prone to agree to hostile takeovers or to sell individual assets at less than competitive prices.
Intangible assets (brands, relationships, know-how) now make up a greater proportion of the total value of many businesses than tangible assets (plant, machinery, and real estate.
However, Brand Finance points out that current financial reporting rules allow intangible asset disclosure only during M&A activity, resulting in no knowledge of the worth and business importance of intangibles, unless they are subject to acquisition.
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