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EFRAG research project on better information on intangibles

Description

Objective

The aims of the project are: 

  • to explain how entities report on creating, maintaining and/or improving their value; 
  • to explain how users consume information on creating, maintaining and/or improving value, and the extent to which current reporting addresses their needs; and 
  • ​to provide suggestions on how information on creating, maintaining and/or improving value can be provided in financial reports in a manner that is useful for decisions on providing resources to the entity. 

However, the project does not aim to change accounting requirements with the view to align the reported equity carrying amount with the market value of the company.  

To develop alternatives to provide more relevant information on intangibles in financial reporting, the EFRAG Secretariat plans:

  • to address a number of aspects in relation to internally-generated intangibles, including a categorisation and description of the different types of assets (marketing, technological, social, reputational or human capital) and how their different features are relevant in terms of financial reporting.
  • to investigate how to consider uncertainties that exist both in relation to the entity's ability to access future benefits and their amount and timing. This includes, for example, considering the ability of competitors to duplicate the entity's resource,  barriers for usage and spillovers.
  • to develop metrics to express earning potential and value: Measurement or disclosures.

Project history

​In August 2018, following the input received from constituents in response to the EFRAG Research Agenda Consultation, the EFRAG Board decided to add a research project on better information on intangibles to its research agenda. 

The project will be approached in four phases.

  1. Problem Description: performing activities which will result in gathering information in order to formally define and describe the problem.
  2. Literature Review: performing a qualitative analysis based on relevant academic papers with a selected academic team from the University of Ferrara that is expected to be finalised by Q3 2019;
  3. Key Information Solution: researching for possible solutions to the defined problems, what may include:
    1. categorising and describing the different types of assets and how their different features are relevant in terms of financial reporting. The categorisation may be based on the nature of the intangible (marketing, technological, social, reputational, or human capital), the industry or some other criterion; and
    2. developing key indicators to express earnings potential and value. These may not fit as a measurement basis but could be used to disclose information in the notes.
  4. Testing: testing the identified solutions on different companies, including, if possible, the tests with the European Corporate Reporting Lab.

Tentatively, the EFRAG Secretariat estimates that Problem Description phase should be finalised by the end of 2019, what would include drafting a discussion paper. The literature review is expected to be finalised by Q3 2019. Key Information Solution phase will take approximately 12 months and testing phase will take approximately 9 months.

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