
While it may be primarily an issue in the US, an onslaught of M&A deals has meant quite a few UK firms have also felt the burn. With the advent of IFRS 3???a framework for recognising various intangibles?? the importance of brands in financial decisions and reporting has become clear. However, in the minds of equity analysts and CFOs alike, directors and stakeholders don’t often have an adequate understanding of how intangibles impact the value of businesses.
Even more critically is the fact that internally generated intangibles are generally not recognised at all.?This is according to?Brand Finance CEO David Haigh, who commented on the results of his company’s latest research. Each year the company analyses the value of intangible assets on world stock markets through its?”Global Intangible Finance Tracker”, which has recently revealed a strange phenomenon. “While Smirnoff appears?in Diageo?s balance sheet, Baileys does not,” said Haigh. “The value of?Cadbury?s brands was not apparent in its balance sheet and probably not reflected in the share price prior to Kraft?s?unsolicited and ultimately successful contested takeover of?that once great British company. “There are many other examples of this unfortunate?phenomenon?? intangible?assets not appearing in balance sheets unless there has been?a separate purchase for it ??which has led to the call for a new approach?to financial reporting. There is a growing demand for?boards to be required to disclose?their opinion of the underlying values of all?key intangible assets under their control. We believe that?this exercise should be conducted annually and include?explanatory notes as to the nature of each intangible asset,?the key assumptions made in arriving at the values disclosed?and a commentary about the health and management of?each material intangible assets. They could then be held?properly accountable.” He suggested that too many great UK brands had been?bought and transferred offshore as a result of the ongoing?reporting problem.?In fact, 2015 research, which spanned across 120 stock markets, revealed that ?1.50tn of assets are left unaccounted for, making British companies vulnerable to underpriced bids and subsequent exploitation. Read more about takeovers:- Expect more hostile takeover bids now UK seen as tax haven
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