This article originally appeared on CFO.com, September 1, 2016
by David McCann
Did you know that assets comprising 86% of the market value of Dow Jones Industrial Average companies are not reported in financial statements? Perhaps not, if you think of company value strictly from an accounting standpoint.
As the late Roger Sinclair forcefully argued in three articles for CFO, it seems plain wacky that accounting rules still prohibit companies from including the value of internally created intangible assets alongside tangible assets in their financial statements.
After all, there’s no debate that today, a majority of most companies’ market value derives from brands, patents, technologies, and other intellectual capital. That wasn’t the case when the process of standardizing accounting practices began hundreds of years ago. It wasn’t even the case, for the most part, 30 years ago.