Consequently, the question arises whether the existing standards of reporting intangible assets are efficient enough for financial information users and whether they are consistent with the two major accounting principles: objectiveness and prudence.
It should be further noted, that when it comes to reporting financial information one can hardly equate information reporting purely to mechanistic processes. In cases when there is a certain degree of uncertainty, like in intangible assets valuation, reporting always involves human judgment. The IASC Framework defines prudence as "the inclusion of a degree of caution in the exercise of the judgments needed in making the estimates required under conditions of uncertainty, such that assets or income are not overstated and liabilities or expenses are not understated".
Prudence is one the major qualitative characteristics of accounting information that makes financial information important for financial statements users as well as relevant in the decision-making process. Thus, the present methods of intangible assets valuation and reporting contradict the principle of prudent reporting, as a company’s financial situation can be both overstated and understated when the notion of intangible assets such as company’s reputation are ignored. Going even further then this, since the present techniques of reporting value mainly tangible assets thus revealing purely the book value of the company, needs of information users regarding verifiable estimation of a company’s market value are unsatisfied.
It should be further noted, that the present techniques of reporting intangible assets contradict the prudence principle and, going even further then this, undermine the fundamental qualities of financial information. The notion of relevancy is questioned as the book value reporting vastly ignores the market value of the company, thus, information is not relevant in the decision making process. The notion of comparability is another clash point, as intangible assets become identifiable, and, thus, can be reported if they can be separated. In such way, a company that is selling its trademark or is issuing a franchising agreement would have more assets reported on its’ Balance Sheet then a company that is facing a similar financial situation, however, did not sell its’ trademark, thus, the intangible asset cannot be identified. In such way, information can hardly be referred to as being objective and comparable. Given the basic clash points between intangible assets reporting and basic accounting principles, let us take a closer look at the major value drivers of intangible assets in order to estimate the relevancy of the notion in the current market situation.
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