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.  

These standards apply in various forms and measures to financial reporting about intangibles worldwide.   Many of them are restrictive and don’t allow a wide breadth of value interpretation.

We intend to talk in more detail about the accounting standards and their limitations in further detail in a later post.   For the moment, we are going to keep on ignoring them, but we feel we’re duty bound to offer a brief explanation as to why.   The explanation runs like this:

·                Accounting standards are primarily directed to maintaining the standards that apply to financial reporting.

·                As a general rule, financial reporting is treated as a way of keeping score, not as a basis for future decision making.   Managers tend to make key strategic decisions before the relevant financial reports are issued.

·                That means that until the accounting standards allow for more suitable intangible metrics, we have to find a good method to describe our progress.  

Some of the methods we use will be closer to the mark than others, which is why it’s important to explore the issue and find out where you sit on this issue.

Of course, it would be wonderful if, year after year, we were able to put cold, hard numbers on our intangible assets for financial reporting purposes.   It certainly would make the task of getting investment funding a lot easier.   Right now, that’s not possible.   Perhaps that might change in the future, but for now it’s important that you get an understanding of what metrics will work best to make your management task easier, and perhaps even put you on the best possible footing to engage your stakeholders in the future.

In the meantime, the accounting standards elephant will continue to stampede, but if you don’t bother him, he won’t bother you...