EFRAG research project on better information on intangibles
- Research phase
- Ricardo Torres Ruiz-Olivares, Rasmus Sommer, Hocine Kebli, Robert Stojek
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.
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.
In Q1 of 2019, the EFRAG Secretariat conducted a total of 17 interviews with academics, preparers, users, valuers and other professionals. There was a degree of consensus that that information about the intangibles is lacking in the primary financial statements, however, interviewees expressed a mix of views regarding the possible solutions to the problem.
Next Steps and Deliverables
The next step in the project is to identify how entities are currently explaining how they create, maintain and/or improve value. The EFRAG Secretariat will then create panels of users and preparers to identify examples of good practice. A call for members will be sent in December 2019. First good practice in selected industries in which intangibles are very important will be considered. It will then be examined whether the solutions could be applied to selected industries in which intangibles are less important .
The EFRAG Secretariat plans to issue the following deliverables in further stages of the research project:
- The EFRAG Secretariat has commissioned an Academic Literature Review. The review was performed by a team from the University of Ferrara following a tender. The draft report was discussed by EFRAG TEG in its September 2019 TEG meeting. The report will be issued by H1 2020.
- Problem Description. Performing activities which will result in gathering information in order to formally define and describe the problem.
- Input for the EFRAG comment letter on the IASB's project regarding management commentary. This input should be finalised by H2 2020 to be ready for the expected Exposure Draft in H2 2020.
- Key Information solution. Researching possible solutions to the defined problems. This phase is expected to be finalised in H2 2020.
- Testing: testing the identified solutions on different entities including, if possible, testing with the European Corporate Reporting Lab. This phase is expected to be finalised in 2021.
In the course of the research project, the EFRAG Secretariat plans to collaborate with the standard setters and organisations that have already published reports on intangibles.
21/01/2020 - EFRAG Advisory Panel on Intangibles: Call for candidatesHow does an entity create, maintain and enhance value? What information about intangibles do investors need but cannot find in the financial statements?
14/01/2019 - Extended application deadline for the academic literature review on intangible assets
The new deadline is 31 January 2019.
04/12/2018 - EFRAG calls for an academic literature review on reporting on intangible assets
The academic literature review will form part of EFRAG's project on better information on intangible assets.