Financial Reporting of Intangible Assets: The Realibility of Measurement Methods
Intangible resources have become increasingly important since the 1990s and most of the major world economies have shifted their focus to become knowledge-based economies. Consequently, many researchers are questioning the decision usefulness of information contained in financial statements. Fail...
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| Format: | Thesis |
| Language: | English English |
| Published: |
2008
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| Subjects: | |
| Online Access: | http://psasir.upm.edu.my/id/eprint/6919/1/GSM_2008_1.pdf |
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| Summary: | Intangible resources have become increasingly important since the 1990s and most of
the major world economies have shifted their focus to become knowledge-based
economies. Consequently, many researchers are questioning the decision usefulness of
information contained in financial statements. Failure to report the substance of
intangible resources has been identified as one of the major root causes. The existing
asset recognition criteria, which emphasize measurement reliability has made it difficult
for most of the intangible resources to be recognized as assets in the balance sheets.
Based on the fact that measurement reliability is an issue in the recognition of
intangible assets in financial reporting, this study asks the question: whether the
estimated fair values of intangible assets derived from the selected measurement
methods, faithfully represent the market value of the assets. This study aims to analyze
the reliability of the selected measurement methods used in estimating the fair value of
intangible assets.
This study adopts the price model used in the relevant literature as the basis for
theoretical framework. Fair values of intangible assets estimated using the selected measurement methods have been used to study their association with market values.
Coefficient of correlation, coefficient of slope and coefficient of determination are
employed to ascertain the significance and degree of representational faithfulness,
which serves as a proxy to measurement reliability.
This study finds that measurement methods based on abnormal cash flow and earnings
produced fair value of intangible assets: which are representational faithful to their
respective market values. This provides empirical evidence that the measurement
methods are reliable in estimating the fair value of intangible assets. This study
concludes that measurement reliability, via its proxy - representational faithfulness, is
market verifiable and need not necessarily be mutually exclusive with relevance, which
is another qualitative characteristic of decision usefulness. The findings and
conclusions are vital in supporting the pervasive use of fair value measurement in
financial reporting. This will eventually improve the quality of financial reporting of
intangible assets and decision usefulness of accounting information. In a more recent
development, the International Accounting Standards Board proposes to replace
measurement reliability with representational faithfulness as a qualitative characteristic
of decision useful information. |
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