Measuring and Representing the Knowledge Economy: Accounting for Economic Reality Under the Intangibles Paradigm

104 Pages Posted: 13 Sep 2004

See all articles by Olufunmilayo Arewa

Olufunmilayo Arewa

Temple University - James E. Beasley School of Law


Enron has become a symbol: a symbol of excess, an illustration of how a company can base its business on fraudulent, deceptive or even largely non-existent business transactions. The collapse of Enron had a significant impact on the adoption of legislation such as the Sarbanes-Oxley Act, which was intended to prevent the types of fraudulent behavior that occurred at Enron. However, Sarbanes-Oxley and other responses to the business practices of many companies during the late 1990s do not fully address some of the underlying factors that permitted and in fact encouraged the Enrons of the world to represent their companies in a particular fashion. Such legal interventions further do not address underlying factors rooted in the fact that many companies now operate within the context of knowledge economy intangibles paradigm business practices. Current securities law disclosure frameworks are largely based on an implicit assumption about the nature of companies' business operations. Such frameworks were developed during a time period in which the principal business model was one based on the exploitation of tangible assets. Since the latter half of the twentieth century and the advent of the knowledge economy or digital era, an increasing number of companies have begun operating under businesses models in which the predominant source of value comes from intangible resources. As a result of this fundamental change in business models, an intangibles "haze" has come to characterize the application of securities disclosure and accounting rules. This intangibles haze has meant that securities disclosures made by such companies, particularly as reflected in financial statements such as balance sheets, increasingly do not reflect underlying economic reality.

Keywords: Intangibles, Legal Framework, Accounting, Cisco, Enron, Wal-Mart

JEL Classification: K20, K40, M41

Suggested Citation

Arewa, Olufunmilayo, Measuring and Representing the Knowledge Economy: Accounting for Economic Reality Under the Intangibles Paradigm. Buffalo Law Review, Vol. 54, No. 1, 2006; Case Legal Studies Research Paper No. 04-14. Available at SSRN: or

Olufunmilayo Arewa (Contact Author)

Temple University - James E. Beasley School of Law ( email )

1719 N. Broad Street
Philadelphia, PA 19122
United States

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