Accounting for Intangibles - A Critical Review of Policy Recommendations

Abstract

I review and critically evaluate the arguments in favor of reforming current accounting and disclosure practices related to intangibles. I argue that the case for reform is actually rather weak. Proponents of reform provide little cogent evidence in support of claims that current practice is having adverse capital market effects. In fact, theory and evidence from corporate finance suggest that capital markets perform well in financing investments in innovative, high-technology activities. I discuss why mandating additional disclosure in this area is unlikely to be successful and that proposals to recognize intangibles are also flawed. In my view, private incentives are likely to be the most successful way of encouraging disclosure on intangibles, which means that little needs to be done on the part of accounting standard-setters.

Keywords: Intangibles, Policy Recommendations, Disclosure

JEL Classification: M41