ICAS report on Intellectual capital management
It is one of the economic buzz phrases of the moment the knowledge based economy. As traditional manufacturing industries decline, knowledge based industries such as financial services and telecommunications are seen by many nations as the key driver to future economic wellbeing.
One of the challenges for knowledge intensive companies is how to report the value of their intellectual capital to shareholders and markets.
A firm’s intellectual capital includes intangible items such as staff competencies and customer relationships which do not generally end up on the balance sheet.
It is, however, information for which there is a desire from investors and stakeholders in knowledge based businesses.
The Institute of Chartered Accountant of Scotland (ICAS) published research report, Intellectual Capital Reporting: Lessons from Hong Kong and Australia uses these two countries, where reporting intellectual capital is voluntary, to illustrate the huge disparity in the level and style of disclosure.
The research team, led by Professor James Guthrie of the University of Sydney, argues that there is no discernible logic as to why and when companies engage in intellectual capital reporting and that the experience in Hong Kong and Australia mirrors that of other nations, indicating that a policy vacuum exists in the area of international standardisation of intellectual capital reporting.
The research recommends that a stakeholder taskforce co-ordinated by the profession be established to increase awareness about the importance of intellectual capital management and reporting, and encourage the development of reporting policies and guidelines.
Intellectual capital represents a huge proportion of the value of many companies and it is clear from this report that where companies want to, they are finding ways of reporting that.
However, these ad hoc reporting arrangements vary in consistency and quality of information so some kind of intellectual capital reporting framework would increase consistency and comparability for the users of financial statements.
29-Jun-2007