National, or GDP, accounting is about to change in a way corporate accounting is lacking, giving us a “more accurate picture of the world,” according to Baruch Lev, professor of accounting and finance at NYU. One of the longstanding failures of both corporate and national accounting has been the systemic overlooking of the role intangible property plays in today’s economy. A recent look at accounting for over 300 business combinations showed that, when given the chance, accountants describe acquired businesses’ value as consisting of 71% intangibles. But only through a merger or acquisition do the intangibles’ value get reported.
Likewise, national accounting has heretofore largely ignored the value of the contributions of many intangibles … until this week. As reported in the New York Times, on Wednesday the Commerce Department’s Bureau of Economic Analysis plans to restate the national economy numbers, from 1929 to the present, giving “greater economic weighting to the creation of many types of intellectual property – from books to movies to biotech drugs.”
Significantly, among the Bureau’s changes is its treatment of R&D. The NYT looked at 2007 to see the effect of the changes, and R&D alone would have added $200B to the economy.
Valuation will still be elusive, however. As readers of this IP Value Wire know, cost is usually a poor representation of IP value, yet the Bureau will use costs of production as their metric, labeling such costs capital investments, and then counting their subsequent related revenues in GDP as well.