Content area
Full text
'Intangible assets, like brands, do not appear on the accounts of most companies. Putting a figure on brands is imprecise...but valuing them and helping to incorporate that value in decisions should not be outside the realm of management accounting.' This quotation, from the January issue of Management Accounting,(1) raises an interesting point as to whether it is appropriate to include brands in the published accounts.
The directors of a business are, inter alia, custodians of balance sheet assets. The choice of assets and their subsequent utilisation are critical determinants of productivity and hopefully profitability. The word 'hopefully' is important since the link between productivity and profitability is dependent on there being a market for the product. However, the marketing link between productivity and profitability is often ignored in the published accounts. This is a matter of great consternation to the marketing fraternity, who accuse us of using 'outmoded financial practices',(2) and I would argue that their criticism may be justified. There is little point in showing a balance sheet full of stored 'future economic benefits' (ASB definition of an asset) if those benefits are not realisable because of prevailing market conditions.
A key aspect of the marketing interface is the question of brands which, according to Aaker, should be recognised by businesses and investors as the company's most valuable assets: 'This is a critical concept. It is a vision about how to develop, strengthen, defend and manage the business... It will be more important to own markets than to own factories. The only way to own markets is to own market dominant brands'.(3) The common accountancy response would probably be: fine, but you tell me how to recognise something as fickle in nature as a brand and then tell me also how to reduce the subjectivity in its valuation. It is a reasonable response which is supported by a London Business School report, which argues that brands are not separable from the goodwill on acquisition of a business.(4) Further, the question of fickleness can be illustrated by the immediate damage to a brand as a result of, for example, a chairman's passing reference to his 'crap' jewellery products.
Despite the opposition to brands the reality is that they are now beginning to appear on the...