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Introduction
A growing divergence between market and book values of firms indicates that current balance sheets are omitting items of value ([13] Lev and Zarowin, 1999). A variety of terms are used to refer to these omitted items, including intangible assets and intellectual capital. The difference between market and book values of assets is often used as a proxy for such intangibles in accounting research, with the underlying assumption that the market efficiently includes the value of the intangibles in the prices of shares.
[13] Lev and Zarowin (1999) found a significant rise in the market-to-book ratios of US firms, from 0.81 in 1973 to 1.69 in 1992, offering evidence that a very large portion of the market value of the companies is not shown on balance sheets. This research indicates that the value of intellectual capital that is missing on balance sheets has grown over the years, and is becoming substantial. However, while the existence of intangible assets is widely acknowledged, an accepted method of measurement is yet to emerge ([17] Seetharaman et al. , 2004; [2] Andreou et al. , 2007).
Published intangibles measurement models can be categorised into four groups, based on:
scorecards (e.g. [11] Kaplan and Norton's (1992) balanced scorecard, [5] Edvinson and Malone's (1997) Skandia navigator and [21] Sveiby's (1997) intangible assets monitor);
monetary values (e.g. [3] Brooking's (1996) technology broker, [20] Sullivan's (2000) intellectual asset valuation and [1] Anderson and McLean's (2000) Total Value Creation(TM));
market values (e.g. Tobin's Q and market to book values, discussed in [19] Stewart, 1997); and
return on assets (e.g. Economic value added, discussed in [19] Stewart, 1997).
Though these models are frequently cited in academic research on intangible assets, particularly as a means of making intangible assets visible, no method has yet emerged to covert these intangibles into monetary figures that are suitable for reporting in audited financial statements. Thus, while there is consensus that the different models do identify intangible assets that are at present missing on balance sheets, no acceptable method is currently available to report all of these assets on financial statements.
One way to address this gap is to look at intangibles on a piecemeal basis rather than as an aggregated whole. It is easier to examine an individual...