The IVSC have issued the first of a new series of their perspective papers on business valuation for financial reporting, this one titled “The Case for Realigning Reporting Standards With Modern Value Creation.”

Any analysis of balance-sheet trends would lead to the conclusion that “modern,” as used here, means “intangible.” What’s noteworthy, of course, is that most listed (and many family businesses) only include intangibles if they’ve completed an acquisition. The new perspective paper, written by Kevin Prall, with support from the IVSC Business Valuation Standards Board, notes the “severe disconnect between market values and book values” unidentified intangibles cause. Prall’s study quotes May 2021 research from PwC that claims intangible-driven companies now have an average price-to-book multiple that’s increased to 10.6x, while “traditional” tangible-driven enterprises remain close to a multiple of 3.0x. That’s a lot of room for valuation judgment, and, of course, even for experts dealing with SMEs, these assets often create the most contention.