Introduction

Although accountancy bodies, financial analysts and academics are still defining and arguing over a set of metrics for intangible resources, and no generally accepted accounting principles have been agreed upon thus far, the pressure on companies to account for and disclose the value of their intangible resources is growing. In January 2000, Federal Reserve Board Chairman Alan Greenspan complained that accounting wasn’t tracking investments in knowledge assets and warned that this could cause problems. In addition, city analysts are these days expecting more detailed reporting and therefore it is important for executives to have adequate reporting measures in place to satisfy their stakeholders. It is thought that these external pressures should, over time, affect the way in which companies operate and measure their intangible resources.

However, it is not only external pressures that should change the ways in which companies measure and report on their intangible value, there are also good reasons why companies should voluntarily disclose information about their intangible resources. The market valuation of a company is based not only on the market’s knowledge of the firm’s fixed assets but also on its perception of the value of the firm’s resources to create future value. Publicly listed companies should be interested in pursuing a favourable share price valuation to ensure a reasonable cost of capital. The appropriate level of capital is essential for all organisations, and with the ratio of intangible assets to tangible assets increasing, organisations should be trying to demonstrate what their intangible assets are and how these intangibles will translate into organisational performance.