The production and consumption of information on intangibles: An empirical investigation of preparers and users

The debate over the valuation and reporting of intangibles, and whether a compelling case exists for a change in the way they are reflected in corporate reporting, is by no means a new issue. Indeed, as the importance of service-based organisations, driven largely by data, information and intellectual property, has grown within the global economy, an increasing focus has been placed on the intangible drivers of value within companies and how these act as indicators of the future prospects and underlying value of a business. This continuing debate on intangibles has occurred against a wider context: (a) concerns voiced over the relevance of financial statements to meet their dual objectives of providing relevant information for valuation and stewardship assessment purposes under the International Accounting Standard Board (IASB)’s Conceptual Framework for Financial Reporting; and (b) a contemporaneous exponential rise in sustainability reporting where ‘value’ is interpreted not just in traditional financial terms and relative to the interests of shareholders and investors but also from the much broader and more varied perspectives of other stakeholders impacted both financially and non-financially by companies’ operations. This broader perspective is at the heart of the new EU Corporate Sustainability Reporting Directive (CSRD) and its foundational concept of double materiality. Preceding the inclusion in July 2022 of a project on intangibles within the IASB’s research pipeline, resulting from its Third Agenda Consultation, EFRAG decided to add a research project on better information on intangibles to its own research agenda in August 2018, which resulted in the issuance of the Discussion Paper ‘Better information on intangibles - which is the best way to go?’ in August 2021. ICAS independently published a positioning paper and call for research on intangibles in September 2019. Although this was wider in scope – considering intangibles not only in the context of financial reporting but also broader narrative reporting – the reporting of KPIs and more comprehensive corporate reporting (e.g., integrated reporting and management commentary), the timing of the ICAS call complemented EFRAG’s direction of travel. Under the ICAS call for research, two projects were selected for funding and support in 2020. This large-scale research project, led by Stefano Zambon, Giuseppe Marzo and Stefano Bonnini from the University of Ferrara and Laura Girella from the University of Modena and Reggio Emilia, was thus funded by ICAS, and with support provided by EFRAG as well as the European Federation of Financial Analysts Societies (EFFAS) joining at this point. The project sets out to: • Analyse the production processes and the disclosure approach for intangibles by a representative sample of European preparers; • Investigate and understand the “consumption” processes of information on intangibles by the main capital market participants in European countries; • Understand the reasons behind those classes of professionals (preparers or users) not wanting intangibles recognised. As is invariably the case, and even more so with intangibles, there is no ‘silver bullet’ or a simple one-size-fits-all solution, and continuing focus and attention are required to determine how and where to provide more and better information on intangibles, as well as establishing the link between sustainability and intangibles reporting. Nonetheless, this project provides much needed empirical evidence on the preferences of users and preparers.