Challenges of Reporting Intangible Assets in Financial Statements

The recent financial crisis highlights the tradeoff between ‘reliable’ and ‘relevant’ accounting and has sparked off an incessant debate. The pursuit of measuring ‘reliability’ vis-à-vis ‘relevance’ persistently comes under the focus of this study. This paper examines the inclusion of intangible assets in the financial statements and the challenges in balance sheet approach of reporting with fair value. Since the measurements are relatively unreliable, there is a need to verify whether they conform to the relevance of intangible assets and also the extent to which the disclosure of intangible assets can be capitalized in the balance sheet. Therefore, it is imperative that unanimous approach of valuation of intangible assets is to be structured under the fair value accounting. This paper seeks to project ‘future earnings’ associated with intangible assets, particularly in reference to brands, in the balance sheet.