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White Papers
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Center for Excellence in Accounting and Security Analysis of Columbia Business School (CEASA)
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Accounting for Intangible Assets: There is Also an Income Statement.
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With value in firms of today flowing less from tangibles assets and more from so-called intangibles – brands, distribution systems, supply chains, “knowledge capital,” “organization capital” – accounting is seen as remiss, with high price-to-book ratios as evidence. In the speculative 1920s, accountants wrote up asset values for perceived value, but woke to the crash of 1929 accused of “putting water in the balance sheet.” The subsequent creation of the Securities and Exchange Commission in the United States led to a 60 year regime where such policy was prohibited. This outlook was reinforced by fundamental analysts of the time, Benjamin Graham and his adherents. Accounting that calls for the recognition of “intangible assets” on the balance sheet may be misconceived. This paper makes the point that omitting these assets is not necessarily deficient: the value of intangible (and other) assets can be ascertained from the income statement. |
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Accounting for Intangible Assets: There is Also an Income Statement. (pages: 26)
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