Intangible assets are, by definition, difficult to define, amass and explain. Yet, corporate reporting standards require assets to be accounted for. For companies with large amounts of intangible assets – often related to employees, brand value or CSR activities – that accounting can be a challenge.

The Chartered Institute of Management Accountants (CIMA) and brand valuation consultancy Brand Finance found that £1 trillion in assets of UK companies are not accounted for.

Charles Tilley, CEO of the CIMA says, “This report raises a very important question around the strategic imperative for organisations to tell the whole story. While undervaluing intangible assets and as a direct result their companies appears to be a particular issue for emerging markets, the UK must also continue to improve upon its intangible asset valuation and reporting.”

The report examined 58,000 companies in 120 stock markets and revealed a 50% increase in undisclosed intangible assets since 2012. They point to this discrepancy in accounting as a contributing factor to companies favouring short-term economic gains rather than fostering long-term brand value.

The problem, the report adds, with British companies is that they tend to be reliant on intangible assets as they have developed strong brands on a global scale. This means Britain’s intangibles account for 64% of the total value of UK companies.

Bryn Anderson, COO of Brand Finance says, “With almost half of the UK corporate enterprise value not being recognised on the balance sheet it is about time management took notice. This equates to a staggering $1.58 trillion or £1 trillion worth of internally generated brands and other IP that obviously needs to be understood, managed, nurtured and leveraged by all stakeholders. It makes strategic, operational and common sense that assets of this importance be managed, and valued in order to drive economic and shareholder value into the future. After all, what gets measured gets done!"

Certain sectors favour different accounting practices, complicating the issue. Banking and financial services shows a high level of tangible net assets, making its accounting relatively straightforward. For industries like extractives, food and drink and pharmaceuticals, however, undisclosed intangible assets comprise a greater portion of the company’s total net worth.

While there is no requirement to account for intangibles, the British and European governments have been calling for more transparent accounting practices for years – a shift which has triggered the rise in narrative and integrated reporting styles. In 2001, the CIMA co-authored a global management accounting standards document to address this issue.

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