Do companies disclose relevant information about intangibles? Insights from business model reporting and risk reporting

The debate over the valuation and reporting of intangibles, and whether a compelling case exists for a change in the way they are accounted for, is by no means a new issue.

Indeed, as the importance of service-based organisations, driven by information and intellectual property, has grown within the global economy, an increasing focus has been placed on the intangible drivers of value within companies and how these act as indicators of the future prospects and underlying value of a business.

This continuing debate on intangibles has occurred against a wider context: (a) concerns voiced over the continuing relevance of financial statements to meet their dual objectives of valuation and stewardship under the International Accounting Standard Board (IASB)’s Conceptual Framework for Financial Reporting; and (b) a contemporaneous exponential rise in sustainability reporting where ‘value’ is interpreted not just in financial terms and relative to the interests of shareholders and investors but also from the much broader and more varied perspectives of wider stakeholders impacted both financially and non-financially by companies’ operations.

This broader view is at the heart of the new EU Corporate Sustainability Reporting Directive (CSRD) and its foundational concept of double materiality.

Preceding the inclusion in July 2022 of Intangibles within the IASB’s research pipeline projects, resulting from its Third Agenda Consultation, EFRAG decided to add a research project on better information on intangibles to its own research agenda in August 2018, which culminated in the issuance of the discussion paper ‘Better information on intangibles – which is the best way to go?’ in August 2021.

ICAS independently published a positioning paper and call for research on intangibles in September 2019. Although this was wider in scope, in considering intangibles not only in the context of financial reporting but also broader narrative reporting, the reporting of KPIs and more comprehensive corporate reporting (e.g., integrated reporting and management commentary), the timing of the ICAS call complemented the EFRAG direction of travel. Under the ICAS call for research, two projects were selected for funding and support in 2020.