Customer Reviews

Intangibles: Management, Measurement, and Reporting

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There is no larger controversy in accounting or investment circles today than the treatment of intangible assets. Economists and investment analysts may debate what is new about the "New Economy", but one thing remains clear, intangible assets are assuming a critical role in the creation of wealth.

Non-physical sources of value, intangible assets are generated by innovation, unique organizations and human resource practices. This asset class often interacts with tangible and financial assets to create shareholder value and stimulate economic growth. Yet they remain conspicuously absent from required disclosures.

Baruch Lev argues in this book that his lack of public information results in improved management of corporate assets contributes to a higher cost of capital and affords abnormally large gains to insiders at the expense of outside investors. To level the playing field, Lev proposes companies periodically release, in addition to the required income, balance sheet and cash flow statements, quantitative and standardized information most relevant to the company value chain or business model.

Specifically, he would require three classes of timely disclosure on what he calls the innovative and successful company's lifeline: Discovery and Learning, Implementation and Commercialization. Under Discovery and Learning, he would require disclosure of internal renewal, acquired capabilities and networks. For Implementation, required disclosures would include intellectual property, technological feasibility and Internet metrics. For Commercialization, required disclosures would include data on customers, performance and growth prospects.

These disclosures will transform the accounting profession from one that is essentially backward looking - how much was sold at what cost - to a forward looking - the creation of value enhancing assets. This recognizes that in the current knowledge-based economy, value creation or destruction precedes transactions, often by years.

Lev's proposed disclosures would compliment current disclosures, providing a reality check on the system of value creation or destruction as products, services and processes move along the value chain.

This book was published 2001 by Brookings as part of a pair; the other being Unseen Wealth

Lev's book comprised his view, whereas Unseen Wealth included about 20 views including Lev's

Lev is primarily concerned with helping the accounting industry fill its black hole; intangibles being the difference between market value and the tangibles that the 100 years rules of tangible accounting prescribe for. Formerly this blackhole was also known as goodwill.

The trouble is as the service and globally/locally networked economies compounded over the last quarter century, goodwill (or transparent trustflows of an organisation mapped in flows of productivities and demands and across to partnering organisations) became the larger dynamic explaining how most value compounds (both finacially and in human terms like learning, community, social progress that take more than 90 days to invest in and may have diverse views of development).

I dont find in Lev's book any answers to such issues as how to resolve the wicked assumptions that all tangible accounting revolve round. These include:
people are costs, only machines are investments

separate units, separate 90 day periods rather than want to map how they interact and compound in non-lonear ways

What is really needed for tracking, strategizing, transparently governing, leading, developing intangibles (and human relationships) is an opposite type of maths that value multiplies instead of separating out bottom lines as if everything in teh world adds up perfectly in 90 days periods. Whilst Unseen Wealth is clear about the magnitude of the Intangibles Crisis, Lev is not so clear. However, his work is the middleground and epicentre if you are looking at intangibles only from the perspective of what to do if you are intent on perpetuating the traditional accounting profession as nearly as possible as is.

Overall, Lev has created a landmark review of the state-of-the science in Intangible Asset Valuation. I haven't found a better book on this very new area, particularly from an Academic Finance point of view.

My main quibble is with his lite treatment of human resource drivers of value. In making his conclusion, he places more weight on a working paper than he does on two peer-reviewed papers in good journals showing relationships between high-end HR practices and shareholder value.

Lev suggests nicely, though, how value gets created, and specific metrics (with empirical support) that are helpful in each part of the value chain. Rather than citing Kaplan & Norton, he creates his own "Value Chain Scoreboard". If he informed his approach with new ideas from Organizational Psychology (e.g. John Bodureau), Industrial Engineering and Marketing, and this would be 5 stars.

Overall, I like Jeanne DiFrancesco's (ProOrbis) ideas better for more concrete application of intangible value creation, measurement and optimal asset mix.

This book makes a huge contribution to the intellectual and practical tool-kit of the smart businessperson. Smart businesspeople sense that intangibles can be the key to creating huge value in the New Economy. What Baruch Lev does so persuasively in his book is to clarify that general sense into sharp knowledge.

Intangibles have very different business attributes than do tangible investments in land, buildings, machinery, and the like. Baruch clearly and cleanly lays out the economic issues involved and summarizes the relevant evidence from a variety of business disciplines (a significant portion of which is from his own highly innovative research and real-world consulting experience).

The book is particularly accessible to anyone who has MBA. I've used the book successfully in my own teaching on the New Economy, and strongly recommend it to anyone interested in learning key insights about today's business environment.

The discipline of intangible management (knowledge management) has been around for decades; there have been many attempts in better understanding & management of intangible assets, with different perspective (organizational learning, technology, strategy etc). Lev has provided a very concise analysis of intangible management with an economics perspective. His analysis is very systematic, robust, with support of empirical studies; his treatment of the subject is coherent & enjoyable to read. But I find the recommendation part of the book slightly weak; the 'value chain scorecard' does not provide significant enhancement over Kaplan & Norton's balanced scorecard.

The topic of intangible assets is one of the most vexing issues facing corporations, investors and policymakers today. Professor Lev's book is an important contribution to the literature on intangible assets. The author is well-informed on the inadequacies of current accounting practices and his prescriptions for dealing with the problems are extremely insightful. What makes this book special is the author's obvious passion and enthusiasm for his subject. This book deserves more than five stars.

This was an easy to read guide to intangibles. It started at the beginning with a simple explanation of what intangibles are and as you go through the book, it gradually dug deeper and deeper into the issues that businesses are facing with measuring intangibles in the current economy. By the end of the book, I had learned more than I had expected about intangibles. There were no complicated tables or graphs included--the author gave real world examples to issues with intangibles, which was a great way to emphasize his points or make the reader really understand his explanations. The appendices in the back of the book also provide information about various accounting rules and regulations for the different categories of intangible assets as well as defining intellectual capital management best practices, which are very useful in the new technology economy. I would recommend this book to anyone beginning to study or learn about intangible assets. Before I read the book, I had very little experience with intangible assets, but the book gave me a better understanding of the background of intangibles.
As we have been moving to a technology-based economy and we are seeing a decrease in the strictly bricks and mortar companies,it seems like now is the time for the business world to see the importance of the measurement of intangible assets. It is not enough for management of companies to know these intangibles exist, they need to find a way to relay that information to the shareholders of the company. I believe this book helps to add to the argument for increased focus on intangibles.

I am writing this review in the perspective of using this book as an instructional tool for intangibles. I found the book extremely easy to read. It was straight forward and included a large amount of relevant information concerning the problems connected to the lack of disclosure of intangibles. The book was not filled with equations or pages of models but simply the authors views on the need for changes in intangible recognition. I did not agree with all the authors' views but can say that I agreed with the majority of them. I felt the author laid the book out in a nice format. He started with a basic definition of intangibles and the problems associated with the lack of their disclosure. He ended with his solutions to the problems and other alternative solutions. The back of the book contains the actual rules and regulations for intangibles and best practices for intellectual capital management.

I would recommend this book to anyone wanting to learn more about intangibles and the reasons for the present lack of disclosure. The appendix in the back of the book can be used for reference material in reports for present intangible regulations. The book provides much thought in the possible areas of change for the future of intangible disclosure. I believe that the future will include intangible asset disclosure and this book brings to light many possible future solutions to consider. I believe the book was well worth the money spent and the time consumed reading it was to my benefit.

It isn't easy to make a book about accounting interesting and uplifting, but this book comes fairly close to accomplishing that. It provides a clear understanding of why it matters how well accounting rules treat intangible assets, and gives some good guidelines on how to improve them.
Some of the proposed improvements are fairly easy to evaluate, such as breaking down R&D into subcategories for basic research, improvements to recently released products, etc., but with some of the book's suggestions (e.g. trademarks) I'm puzzled as to whether there's little to be gained or whether he has a good idea that he hasn't adequately explained.
Alas, accounting standards are a public good that few people have an incentive to create. The improvements suggested by the book could generally be adopted without first being approved by a standards committee because they mostly involve adding new information to reports. But the first company to adopt them gains little until investors can compare the information with that from other companies. And accounting standards committees tend to attract people whose main concern is preventing harm rather than creating new value. And that tendency is currently being reinforced by investors who want a scapegoat for their complacency at the peak of the recent stock market bubble.

With the collapse of dot coms and many other high tech companies, many wonder whether intangibles should also go by the wayside. In his book, Lev persuasively argues otherwise. In today's environment, in both old and new economy sectors, the only systematic and sustainable drivers of value and growth are intangible assets, such as patents, brands, unique supply and distribution processes, and human resource practices.

This landmark book represents the most comprehensive and thorough economic analysis of intangibles to date. Building on the author's high-impact research and first-hand experience working with executives, consultants, and regulators, the book offers a coherent framework for understanding the fundamental economics of intangible assets. Baruch Lev identifies attributes of intangibles that are different from tangible assets (property, plant, and equipment), by focusing on their distinctive role in value-creation. He highlights the most critical issue concerning intangibles: the need to make relevant information available to outsiders.

Perhaps the most difficult job in tackling a challenging issue, such as intangibles, is to recommend a practical solution. Baruch Lev proposes an information system, the Value Chain Scoreboard, to enhance information disclosure about intangibles. A notable feature of the system is its emphasis of key drivers in the creation of valuable intangible assets, as opposed to ex post measurement of performance. Although the focus is on improving external information communication, its mission of reflecting the valuation-creation process of intangibles makes the system potentially useful for managers who want to monitor the performance of investment in intangibles.

With a wonderful blend of real-world stories and easily understood economic reasoning, the book also has tremendous educational value, in a variety of business disciplines. It is an especially valuable source for those interested in learning about managing knowledge-based business.