The history of intangible assets is an interesting one. Prior to 1983, there was no concept of intangible assets on a company’s balance sheet. Only your typical tangible ones such as property, plant and equipment, as well as financial assets. Clearly, this was a case of accounting rules not keeping up with reality, as intangible assets (patents, brand, licenses) had become increasingly important throughout the second half of the twentieth century. And so the regulation was changed. The concept of ‘Goodwill’ was created. However, goodwill was a blanket concept that was basically the difference between the purchase price of an acquisition and the underlying tangible asset valuation. That being said, there was now a way to put a value on the balance sheet for the things that couldn’t be seen, albeit with a very crude methodology.
Throughout the late 1980’s and 1990’s there was significant reform to the accounting rules for goodwill. Identifiable intangible assets became a concept within the international accounting standards, culminating with the release of IAS 38 in September 1998. This codified how intangible assets were to be handled from an accounting and acquisition perspective, but still allowed for the concept of goodwill to cover everything else.
Fast forward to today, and we start to see the challenges that this creates. Data is increasingly becoming a secondary or tertiary (or even primary) revenue source for many firms. Unfortunately, the accounting rules have not caught up again. From a practical perspective, this means that although people recognise that data is valuable, quantifying that value and treating it as an on balance sheet asset is still difficult with no unified methodology across the market.