Leveraging intangible assets as indicators of business value

Photo by Shi Min Teh

In a knowledge-driven economy, IA is becoming increasingly critical in enterprise growth and success. Empirical evidence from the American Economic Association’s research  shows leading global technology companies are investing heavily into IA to remain competitive.

Despite this evidence, important IA information is often omitted from financial and stakeholder reports, which remain rooted in traditional accounting practices developed for a production-based economy.

Research and global trends towards IA disclosure

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Today’s investment environment sees IA comprising more than 80% of the market value within the S&P 500. Global IA values have tripled in the last decade, amounting to US$57 trillion. This also represents two-thirds of global GDP in 2018.

Firms in Singapore have similarly experienced a 150% growth in IA values between 2010 to 2016. Further research by the American Economic Association has shown that leading technology companies investing into IA enjoy higher rates of return on their IA investments and are booking stronger profits.

Current financial reporting standards place more emphasis on tangible asset disclosures as compared to IA disclosures. The Brand Finance Global Intangible Finance Tracker (GIFT) 2019 report indicates that much of IA values remain undisclosed. Thus, there is a growing need to re-assess the accounting for and reporting of IA, to improve the relevance of information provided to financial report users.

In February 2019, the UK Financial Reporting Council issued a discussion paper in response to frequent calls to reform the accounting for IA and explore possible improvements to the reporting of factors, such as IA, that are important to a business’s generation of value.

IPOS and SGX initiatives to raise awareness of intangible assets

The Intellectual Property Office of Singapore (IPOS) and Singapore Exchange (SGX) partnered in February 2020 to launch the “Intangible Disclosure Evaluation and Audit Scheme” (IDEAS) program exclusively for SGX-listed companies and companies preparing for a listing.

The program aims to raise awareness and encourage companies to undergo intangible assets (IA) evaluations and promote a more robust IA disclosure environment. This will help investors better appreciate the value of intangible assets, and support companies in capital raising. 

The IDEAS program provides companies with government support to undergo an IA evaluation and audit process. The process will enable companies to identify important IA information that are key drivers to their businesses, and make recommendations on disclosing such important information to communicate business value to the market.

Greater transparency and clarity in IA disclosures will help companies build investor trust and enhance the effectiveness of the Singapore capital market in helping IA-rich businesses raise capital, as the knowledge economy shifts away from the traditional indicators of performance grounded in tangible asset values.

Dr. Bernard Ong, Group Director of Policy & Engagement at IPOS, said: “Technologies, brands, ideas, data, know-hows and other forms of IA are the primary forces making the world’s most innovative and valuable enterprises.”

“Yet, market understanding of IA, including intellectual property, remains a big challenge to investors and enterprises alike. IDEAS will enable investors to make sharper investment decisions while helping IA rich companies unleash their real enterprise value,” he continued.

Mr. Chew Sutat, Head of Global Sales and Origination at SGX, said that this partnership with IPOS is another step towards their vision of creating a robust and supportive ecosystem in Singapore for innovative companies.

“Listing on the exchange is often one of the steps in a company’s journey and we are committed to supporting businesses through every phase of their growth. In helping to develop greater awareness and understanding of IA, we can bring more value to our listed companies and the wider business community,” he continued.

IDEAS will run as a pilot program until the end of 2020. During this period, companies will be nominated by IPOS and SGX to participate in the program and will receive IPOS’ support to undergo an evaluation to identify key IA information that could be better disclosed to their stakeholders.  Feedback gathered during the pilot phase will be instrumental in shaping future support for IA disclosures. Only a limited number of companies will be able to participate in the pilot program.

SGX-listed companies, REVEZ Corporation Ltd and Hyphens Pharma International Limited, as well as Memiontec, currently preparing for its listing, are some of the companies already confirmed to join the IDEAS program.

Mr. Victor Neo, Deputy Board Chairman and Group CEO of Revez Corporation Ltd said that this was a good opportunity for his company to identify and articulate their business value that is driven by non-physical and non-monetary assets, such as reputation, expertise and brand value.

Mr. Tay Kiat Seng, CEO of Memiontec expressed his belief that participating in IDEAS will provide his company with fresh insights on the value drivers of their business.

“Having a deeper understanding of our company’s intangible asset and proprietary know-how, can enhance how we showcase our value to our clients and investors,” he concluded.