Business valuers recognise that intangibles present individual ‘facts and circumstances’ challenges. And IFRS 3, even without the proposed amortisation changes, does not fully report the current value of acquired or created intangibles (increasing the operational value of intangibles is generally a strategic goal).
One place to look for benchmarks is the ‘2020 Global Intangible Finance Tracker’ (GIFT) study from Brand Finance. ‘GIFT 2020,’ released last week, takes issue with accounting standards (again) since they do not reflect fair value. David Haigh, CEO of Brand Finance, has been quite vocal on what he calls ‘the failure of IFRS 3 to adequately report the current real value’ of all intangibles. And, as Annie Brown, the author of the GIFT reports, writes:
Investors deserve better. They deserve better disclosure about internally generated intangibles, and they deserve a higher quality of the reporting of acquired intangibles. Reporting standards need to go further to guide boards to this greater transparency.
No wonder analysts struggle.
What can business valuers learn from ‘GIFT 2020’?
- Total intangible asset value has risen to an all-time high of $65.7 trillion, representing 54% of overall listed global value.
- Total intangible value is comprised of both disclosed intangibles and undisclosed intangibles. Within disclosed intangibles, the most valuable asset class continues to be goodwill, which represents approximately 8% of global value, at $8.8 trillion as of 1 September 2020.
- UK auditors are comparatively cautious about adding intangibles to listed company balance sheets. In fact, they’re not even in the top 10. The United States retains its crown as the most ‘intangible’ country based on listed entities, concludes the report.
- Despite the fact that many entities report goodwill that is higher than the total value of the company, only 10% took an impairment in the last 12 months.
- Intangibles are subject to market conditions and many other factors and don’t track well with any indicator of performance. Summarising this problem for financial analysts, GIFT 2020 quotes David Matthews, the president of ICAEW, who says, ‘I recognise the utopia where you could have the value of the balance sheet equate to the enterprise value, but I don’t think it is likely.’
- The biggest impairments this year? Schlumberger leads the list (at about $US9 billion), followed by HSBC, Procter & Gamble, and CenturyLink.
- Expect a big write-off in the first year when a new CEO and/or CFO takes over.
- Smaller enterprises are less likely to have major internally generated brand values, but the trend still follows that higher-valued companies tend to have higher undisclosed intangibles.
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