Valuing the invisible: advocacy groups join movement to develop intangible asset valuation standards

BVWireIssue #61-1
October 3, 2007

“Eighty percent of a corporation’s market capitalization is intangible—assets that are not understood, and definitely not protected by traditional insurance [valuations],” said NASDAQ’s William McGinty in his keynote address to the Intangible Asset Finance Society’s (IASF) Fall Conference last week in Syracuse, NY.  Intangible assets—brands, reputations, patents, trademarks, and other intellectual property—now comprise between 60% and 85% of the market value of the average S&P 500 company.  But they are not easily insurable, McGinty said, because “they’re not easily predictable.”

Because appraisers, accountants, and insurers have found it “impossible” to determine the value and risk of intangibles with any certainty, according to Nir Kossovsky, IASF Executive Secretary, “official accounting rules give intangibles a wide berth.  In all cases, there is little relationship to market value.”  As reported in a recent New York Times article, the IASF is just one advocacy group working to develop new standards and practices for “monetizing” these otherwise invisible assets.  Another is the Social Venture Technology Group (SVTG).  Its “Social Return on Investment” analysis seeks to develop a systematic method for identifying, measuring, and reporting the full spectrum of business value, environmental as well as social and economic.  The SVTG site also offers “SocialMetrics,” a tool for those just starting on such assessments as well as “the expert seeking to share or get input on your metrics and methodologies.”

Reminder: comments to IVSC on intangibles due soon On a related note, comments to the Discussion Paper, Determination of Fair Value of Intangible Assets for IFRS Reporting Purposes, recently issued by International Valuation Standards Committee (IVSC) are due October 31, 2007.  (See BVWire™ # 59-2).  A copy of the Discussion Paper is available at the IVSC website.

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