Effects of Omitting Intangible Assets from the Financial Statements (Term Paper Sample)

Effects of Omitting Intangible Assets from the Financial Statements
Name of Student
Name of Institution
Accounting for Intangible Assets by CEASA ( Centre for Excellence in Accounting and Security Analysis
Accounting for some time has been omitting reports on intangible assets and their benefits from the financial statements. This has generated heated arguments among various stakeholders of companies. CEASA therefore wrote a journal on the benefits of omitting these intangible assets for example, the company brand name, supply chains, and distribution channels from the financial records of companies. This article therefore instills more knowledge to the accounting students and the entire business world on the effects of intangible assets to the financial records or statements and also to the stakeholders (Stephen & George, 2009).
CEASA gives an example of Coca- Cola Company which according to them does not report on their brand asset on their balance sheet. Earnings from the brand name and other intangible assets such as supply chains are however included in the income statement. The omission of intangible assets therefore results to better quality of financial reporting by providing relevant information to stakeholders as all the income statement corrects the deficiencies in the balance sheet (Beaver, Correia & McNicholas, 2011).
The research question raised in this journal is if and how accounting for intangible assets in the balance sheet improves the quality of the financial records of a firm. The answers to this research question helps in determining the importance of omitting intangible assets to the stakeholders. The article however does not inform the readers how the stakeholders prove whether the information provided is true. This therefore calls for the company to keep a record of the benefits accrued from the intangible assets should the stakeholders ask for it.
Reflection
The financial record of a firm can be represented in either a balance sheet or an income statement. Ant information omitted in the balance sheet can be included in the income statement and vice versa. Therefore, omitting intangible assets from the financial statements will improve the quality of the information required by the stakeholders at the end of a financial year in the sense only relevant and reliable information will be recorded. The evidence provided in the article clearly proves this point.
Some of the points raised in this article points out that accounting is not deficient in omitting intangible assets from the balance sheet.
Investigating the possible value omitted in the balance sheet- A New Zealand perspective
This article concentrates on intellectual capital which is used interchangeable with intangible assets as both of them are non- physical. The article defines an intangible asset as a non- physical source of future economic benefits to a company that is acquired through exchanged or developed dentifiable costs. Intangible assets have a market value, a finite life and they are owned by the organization or the company. They may include: a patent, unique organizational structures or a brand name. These items are unique from organization to organization and the company may decide on how to represent benefits accrued from these assets in their financial records.
The research questions for this article include:
To investigate the complex debate about recognizing intellectual capital or intangible assets in the balance sheet
To assess the importance of the recommended methods for valuing intangible assets
In the article, Brenann and Connell (2002) illustrates the model ‘invisible balance sheet’ as a method of representing the assets for the companies that strive to be knowledge- based. This model describes intangible assets as three categories of capital and that is; customer, structural and human capital. The information on these capital items is either represented in a balance sheet or an income statement. This entirely depends on the company as the officials are the ones responsible for the presentation of this information to the stakeholders. Every company aims at providing relevant and faithful financial records to their stakeholders and therefore coming up with an appropriate method for doing this is very vital (Datar, Rajan & Wynder, 2013)
The omission of internally generated intangible assets from a company’s financial statements results in better quality of the financial information presented to the stakeholders. This is because only a final report on the benefits will be presented making it precise and easier for the stakeholders to comprehend it. This article however gives only three categories of capital that should be omitted from the financial statements and that is, customer, structural and human capital and fails to indicate what should be done to the rest such as supply chains and distribution systems (Gruber, 2014).
Reflection
This paper discuses a heated debate concerning the recognition of intellectual capital in the financial statements with most people terming the omission of intangible assets as irrelevant though to the contrary it actually simplifies the financial reports presented to the stakeholders.
Journal of accountancy by Thomas A. Ratcliffe
This is a professional article by Thomas Ratcliffe and it explains what types of accounts the company should prepare on the intangible assets and other goodwill when asked by the client or the stakeholders. According to this article, stakeholders and clients want a financial statement or record that they can easily comprehend. To do this, the company will need to omit the intangible assets such as the brand name and the benefits that come along with it from the financial statements and only include them at the final financial records that the stakeholders want to see. This simplifies the information and even those poor in accounting can understand it. This definitely improves the quality of the financial reports as perceived by the stake holders as they clearly understand every detail of the financial report.
Thomas recommends on the use of an â...