11 terms

Intellectual Capital

STUDY
PLAY
Three components
Internal, External, Human
Internal
Processes, systems, culture, intellectual property
External
Brand, customer relations, image, market share
Human
Know-how, T&D, employee relations
IC should be recorded because
Greater focus on service orientated firms
Will reflect the true value of firms
More comprehensive
There is a growing need for non-financial measures
Decreases information asymmetry between normal and large investors, because large investors normally know more information
Insider trading may occur
Cost of capital will be increased due to high risk
IC shouldn't be recorded because
Time expensive
Cost expensive
Difficulties in regards to what to include on the BS and valuation
Reasons to report IC internally
To align IC with the company's strategic vision
To maintain various parties awareness of the company
To help bridge the present and past performances
To assess the effectiveness of IC utilisation
To allocate resources between various business units
To extract full value from acquisitions and joint ventures
To relate employees contribution to IC then to profits
To meet the demands for IC, and social and environmental reporting
"What gets measured, gets managed"
To report on current and future income
Reasons to report IC externally
Knowing your true value can give you competitive advantage
To reflect the actual worth of company
To enhance shareholders value through improving the accuracy of the stock prices
To reduce uncertainty
Is integrated reporting achievable?
Not at the moment because:
Not all countries are on the same page. Some countries are unresourced to achieve it and some countries don't want to implement it. This causes a comparability issue. Everyone has to be on the same level before IR can be achieved.
What are the concerns with the proposed integrated reporting framework?
Materiality - firms might not be disclosing what they need to
Future - you don't know what you don't know
Amount of information - some users won't get enough information, some may get the wrong information, and some will get too much information.
What are the 6 categories of capital?
Financial, manufactured, intellectual, human, social and relationships, nature.
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