Growing Businesses With Intangible Asset Disclosure
06 Sep 2023
Growing Businesses With Intangible Asset Disclosure
THE global economic landscape is continuously evolving with the focus increasingly on innovation and new technologies. As such, a growing part of companies’ value resides in their intangible assets (IA), including intellectual property (IP), to a global sum of around US$57 trillion today.
It is imperative that mechanisms are in place for businesses to capture more opportunities from their IA.
While IA has increasingly become drivers of economic and business value, IA reporting remains at a nascent stage globally and there is room for improvement in the amount of IA information being disclosed beyond financial reporting requirements.
The Intangibles Disclosure Framework (IDF), jointly announced on Sep 4 by the Intellectual Property Office of Singapore (Ipos) and the Accounting and Corporate Regulatory Authority, and developed in partnership with industry, is a significant step forward.
The IDF provides a framework to guide businesses to identify, strategise, manage and disclose their IA systematically.
This is a key initiative under the Singapore Intellectual Property Strategy (SIPS) 2030, to develop a credible and trusted IA
valuation ecosystem here.
The IDF aims to improve the overarching IA ecosystem by providing more data reference points, fostering greater awareness and market transparency, facilitating more buy-sell IA transactions, and eventually leading to more confidence in IA financing.
This will then enable more robust IA valuations and strengthen Singapore’s IP hub status. It will also boost innovation efforts in Singapore, which is already one of the leading innovative economies in the world according to the annual Global Innovation Index.
The IDF helps improve the comparability of companies’ IA disclosures.
By setting out key disclosures principles, the IDF lays the foundation for the harmonisation of IA disclosure by enterprises within sectors or similar sectors.
A recent survey conducted by Ipos revealed that four out of five enterprises in Singapore wanted more opportunities to
use their IA to help grow their business, including to obtain financing.
The IDF can be a transformative tool to help businesses better communicate IA information and secure a competitive edge.
For example, enterprises may be able to better inform stakeholders how their unique portfolio of IA protects their products and services and contributes to overall business revenue and profits. Startup enterprises with minimal cash flow, but a strong portfolio of IA, may be better positioned to raise capital on the back of such IA.
Enterprises can also use the IDF to guide disclosure of IA risk management and strengthen corporate governance.
In addition, increased consistency and comparability of IA information will provide investors and financers with a better understanding of the financial and business prospects of firms. In turn, this builds investment confidence and encourages investment activity, and affords businesses better access to funds through either debt or equity financing.
The availability of clear and standardised data will provide investors a better grasp on the value of enterprises, and businesses that choose to disclose their IA data could see tangible returns via better IA valuation.
The key principles in the IDF are anchored in four pillars: strategy, identification, measurement, and management (SIMM).
The strategy pillar supports the disclosure and communication of how intangibles are relevant to, and used in, companies’ overall corporate strategy.
The identification pillar outlines how enterprises should describe the nature and characteristics of their intangibles.
Meanwhile, the measurement pillar serves to guide enterprises on how they can disclose performance metrics and
drivers of their intangibles.
Lastly, the management pillar informs enterprises on how to disclose the way they manage risks and opportunities related to their intangibles.
The IDF does not mandate compulsory disclosure, nor is it intended to supersede existing regulatory or accounting requirements.
Its voluntary adoption is intended to give stakeholders a better understanding of how an enterprise uses its IA to create returns for its investors and the role of IA in various aspects of the business, especially in financing.
Unlocking the value of intangible assets
The IDF is a good first step to build up IA information in the market to facilitate IA valuation, transactions, management and commercialisation.
For it to deliver the desired value to all stakeholders, close collaboration between businesses, banks, venture capitalists, financial service providers, regulators and government agencies is needed.
When sustainability reporting was first introduced, it took time for the market to find its footing. Similarly, IA reporting could eventually become part of mainstream financial reporting if demand for it from all quarters picks up.
Businesses looking to get started on their IA disclosure journey can start with these simple steps:
■ Identify IA, and protect a company’s IA
■ Understand how IA drives business and manage it as an integral part of business strategy
■ Utilise the IDF to better inform stakeholders of the company’s IA and how IA drives value
The writer is chairman of the Institute of Valuers and Appraisers, Singapore council and valuation leader at PwC Singapore
More information on the IDF can be found at https://go.gov.sg/idf2023
This article was written by Mr Lie Kok Keong for The Business Times Opinion and was published on 6 September 2023.
See the full article here.