Value and Intangibles - but what about GAAP?

We interrupt our broadcast on value and intangibles to address a pressing question.

It’s time we came clean with you about something.   In our discussions about intangibles and value to date, we, have, quite frankly, been studiously avoiding a rather large elephant stampeding through the room.   That elephant is, of course, the generally accepted accounting principles or standards.  

Value through use of strategic structures

We’ve been exploring the topic of intangibles and value the last few weeks.   So far, we’ve discovered that:

·                Intellectual assets are difficult to value because they are generally developed in a unique environment and designed to meet unique challenges..

·                One of the ways to value these intangibles is to “buy out” of thinking that relies on double entry book-keeping, and choose alternative valuation methods that focus on aspects of the asset that favour your market position.

However, it’s not necessary to buy out of the concept of double entry book-keeping.   In fact, one school of thought tells us that if transactions drive a market’s understanding of value, then it’s a better approach to swallow transactional thinking hook, line and sinker.

Value and Intangibles 2 – Accounting and Alchemy

This is the second of our January posts exploring the value problem.   It’s a problem that affects me, you and Wall Street too...

Many of our readers and contributors will be familiar with why intangibles are so hard to account for.   It’s an issue that goes to the heart of the accounting methodologies used around the world today.   These are predominantly based on the double entry bookkeeping system.

Utilised perhaps as far back as the 12^th Century BC, double entry bookkeeping was designed to capture financial transaction flows.   However, internally developed intangible assets can rarely be described in a transactional way.   They are usually developed over the course of a long and involved timeline.   There are very few points along that timeline at which you can take an accurate value snapshot.

There are two fundamental ways to respond to this:

Value and Intangibles – the Value Problem

First, Page Seager IP wishes everyone all the best for the new year, no doubt a year of new milestones and challenges in the world of strategic IP.

We have a number of topics planned for the coming months.   Many of these will address IP issues that we are encountering in the world of information technology.   Before we do that, however, we thought we’d spend some time in January looking at some broader questions affecting the world of strategic IP.

This is the first of a number of posts that will explore a difficult question.   How does one allocate value to intellectual assets?   Intellectual asset managers around the world have been seeking a satisfactory answer to this question for some time – it is something of the Holy Grail in the world of managing intangibles.   If a firm, objective indicator of value could be applied to most IP portfolios (many of which consist of intellectual assets that are a work in progress), this would revolutionise the intellectual manager’s role.   At the very least, the task of convincing boards, potential investors and other stakeholders to commit themselves would be far less of a challenge.