The contemporary business is characterized by the growing role of intangible assets, which used to be irrelevant in the past, but which have become extremely important today. In this respect, it should be said that, unlike fixed assets, for instance, intangible assets are consistently more difficult to evaluate and accountants cannot always cope with the problem of accounting intangible assets, because traditional methods of measuring assets and approaches to accounting do not always work. Moreover, often accountants need the assistance of other specialists working within the company in order to adequately assess and evaluate intangible assets, including human resources managers, public relations managers and other professionals which can affect the issues related to intangible assets.
In actuality, the effective accounting of intangible assets is possible only on the condition that the entire organization, including professionals working not only in accounting but also in other fields, cooperate closely to ensure the effective and accurate accounting of intangible assets. Otherwise, modern companies will be unable to assess and evaluate adequately their intangible assets, while accountants will not be able to provide the effective accounting of intangible assets.
On analyzing the problem of accounting of intangible assets and the involvement of accountants as well as other specialists in this process, it is necessary to briefly dwell upon the essence of intangible assets and current views on issues related to the accounting of intangible assets. First of all, it is necessary to start with the definition of intangible assets, which, though, may differ since different have different views on the concept of intangible assets.
Nevertheless, it is possible to estimate that the common view on intangible assets implies that intangible assets are non-monetary assets that cannot be seen, touched or physically measured, which are created through time and effort and are identifiable as separate assets (Hoegh-Krohn and Knivsfla, 2000). In such a way, it is obvious that intangible assets are absolutely different from traditional assets because traditionally assets were associated with some material, physically measurable assets, which were easy for accounting and did not evoke any serious problems, which accounts could not have resolved. The appearance of intangible assets was the result of considerable changes in business environment, technologies and science which have changed the traditional business and introduced intangible assets. In fact, these changes have occurred within the last few decades in the way the business world operates. The technological revolution and in particular, the information age, has brought intangible resources to the fore of the business environment, to the extent that, today, intangible assets play increasingly more important role and their significance is comparable to that of fixed and tangible assets. The modern business is moving toward the wide implementation of information technologies which contribute to the growing impact of intangible assets on the marketing of modern companies. Moreover, intangible assets constitute an essential part of market value of modern companies. In such a situation, accountants face a serious challenge of assessing and evaluating intangible assets, which, as it has been already mentioned above, cannot be measured physically and therefore, it is quite difficult to measure them accurately, while accuracy is crucial for the effective accounting.
At the same time, it is due to their innovative nature, intangible assets are still quite difficult to define. In this regard, it should be said that in addition to the definition given above, it is possible to add some precisions in regard to the definition of the essence of intangible assets. According to the FASB, an internally generated intangible asset is proposed to be defined as a past event that has measureable effect and that presents a future benefit (DeMark, 2002). The FASB special report states that there is not a need for different rules of recognition for internally and externally generated intangible asset. The FASB clarifies that internally generated intangible asset is simply an asset without a physical presence, nor does have to be an external acquisition: as long as all three tests are conformed with, any business event or process can produce an intangible asset (DeMark, 2002). The FASB further notes that there is an embedded conflict in this definition because it contains a departure from the historic cost principle (Barth, 2000). The move to a forward looking definition is defended by the FASB in making an argument for further disclosure, not a modification for the format and content of the existing presentation rules. In this presentation, for the purpose of defining intangible asset (internally or externally generated) the FASB definition will be applicable (DeMark, 2002).
In addition, it is worth mentioning the fact that intangible assets have two forms: legal intangibles and competitive intangibles. In this respect, it should be said that legal intangibles may be such intangibles as trade secrets, copyrights, patents, trademarks, goodwill, etc., while competitive intangible assets include knowledge activities, collaboration activities, leverage activities, etc. (Barth and Clinch, 1996). Legal intangible assets generate legal property rights defensible in a court of law. Competitive intangibles, while legally non-ownable, directly influence effectiveness, productivity, wastage, and opportunity costs within an organization (Barth, 2000). Therefore, intangible assets affect costs, revenues, customer service, market value and share price of modern companies. In such a context, it is hardly possible to underestimate the significance of intangible assets for modern companies.
On analyzing basic intangible assets that should be assessed and evaluated by accountants in modern organizations, it is possible to single out several intangible assets which are particularly significant in the contemporary business environment. First of all, it should be said that intellectual capital is one of the main assets in the contemporary business environment. In this respect, it is important to lay emphasis on the fact that, basically, modern business uses three major types of capital: physical, financial and intellectual. Intellectual capital is defined as an intangible asset that is not financial or physical and that has been formalized, captured, and leveraged to produce a higher valued asset (Hoegh-Krohn and Knivsfla, 2000). The raw materials captured and formalized in the process of capitalization of intellectual capital is knowledge. Knowledge resides within an individual, a group of individuals or organization-wide. Knowledge that is structured in a formal value is just data, but when it is purposeful and useful, data is considered information which is very important for the contemporary companies because information made use of is knowledge, which can become an intellectual capital.
In such a context, it is obvious that intellectual capital, being of the major intangible assets of any company in the contemporary business environment, is highly dependent on professionals employed within modern organization and these professionals actually constitute another important intangible asset, human capital, which also needs to be accounted. At the same time, it is worth mentioning the fact that human capital is the most elusive from accounting for in financial and quantitative terms. Some specialists (Hussey and Ong, 2000) argue that human capital is the most active value driver in modern business. In this respect, it should be said that it is human resources of the organization who are able to generate new knowledge, process and transform information into knowledge on the basis of which organizations can introduce technological innovations in the production process as well as other organizational changes leading to the consistent improvement of the organizational marketing performance.
In such a situation, it is crucial to account for human capital because, in such a way, it is possible to assess the actual potential of the company’s human capital that allows the company to develop its business on the basis of the actual potential of human capital. A modern company can count for the positive effects of innovations which can be introduced due to the effective use of its human capital. For instance, an innovative technology can be developed by employees of the company and the implementation of the technological innovation can improve the competitive position of the company, increase its revenues and market share, etc. In such a way, the company can use its human capital to improve its marketing performance, but it can face a problem of adequate assessment of its human resources and their potential.
In addition, it is worth mentioning goodwill as another intangible asset which can affect accounting as well as organizational performance at large. It should be said that goodwill is arguable the most conforming intangible asset.
Traditionally, goodwill is viewed as the excess of fair value over book value in purchase transaction. Currently, treatment of any intangible asset has been confined to goodwill produced on the balance sheet from acquisition under the purchase method. As the only allowed intangible asset, goodwill appear in many studies (Barth and Clinch, 1996) pertaining account for intangible assets. As a rule, three tests are applied to allow recognition of an event as an asset: the event is the past event; it is measurable; and, it contains probable future benefit. Goodwill passes the past event, measurable effect and future benefit tests. The reason goodwill can be seen as a past event is that it is easy to date the creation of an acquisition under the purchase method where the fair value of an acquired entity is lower than the adjusted basis to the acquiring entity (Hussey and Ong, 2000). Goodwill arising from the consolidation, merger, or takeover transactions has produced inconsistent definitions of the other classes of intangible assets. For instance, at times a well-trained work force is described plainly as unrecognized goodwill due to the disallowed recognition under generally accepted accounting principles (Hoegh-Krohn and Knivsfla, 2000).