Intangible Assets Upcoming Issues

Posted on December 13th, 2009 in Finance by

Intangible Assets upcoming issues

Intangible assets in Accounting terms are those assets which are not real, not has direct money value. These are in general get created by spending different related resources.

In relation to other assets, which have money value, which can easily be felt and in very accounting concept which are easily movable i.e., the real assets, Intangible assets are just very opposite to that of the real assets in terms of its general definition.

As per current market terminology and acceptance, Intangible assets are those assets which are not openly available, easily leverageable across businesses and not easily substitutable. These are not the assets one can feel to, but are a bit abstract, It has variation in its nature which is because of the nature of the company and nature of the industry to which it belongs. The earlier concept of making money was through tangible assets, but now it is intangible assets which has found to work as a competitive resource.

In the current era, in different segments of an Industry and in different businesses the managers are more responsible to be competitive in the market, more often by managing their competitive advantages and recently managing Intangible assets are recognized as a part of managing competitive advantage of an Organization.

There are three levels in an Organizational hierarchy, Top Management Level, Middle management level and junior management. Quite often the top management is considered as the resource allocator and the strategist, the middle level managers are the administrator to see the proper functioning of the strategies set by the top management and the lower management are defined and set as implementers of the predefined set of strategies. In this standard hierarchy of predefined set of roles using intangible assets means that the management in their function has moved from this standard structure to the purpose, process and people structure. These purpose is bound and to the extent require top management to create an overarching purpose and keep freedom for people to deliver effectively.

The two basic components of intangible assets are (i) Customer Loyalty and (ii) Employee commitments. A company who believes in making intangible assets found to work and concentrate more on customer satisfaction than the figures of its market share.

As the popularity will grow and the recognition come as worth, it is quite possible that in near future the disclosure of such assets in the Balance Sheet would become mandatory. Possibly, the investor demand would go for new concept say customer satisfaction index or employee satisfaction index in companies, before they put their money in that company.

The global business has accepted this concept as a very real and decisive base for any company. The two successive phase of Industrialization which covered the concept of entrepreneurial capital and managerial capital invested successively, has gave birth an argument on as to what the

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third shift in this phase would be considered?. The third shift of industrialization has come with the very known i.e., the intangible assets, as the third phase of Industrialization. This is the thing which supports competitive advantage, which is not available openly, not easily leverageable across different businesses and not have easily available substitutes. Intangible assets under which, employee commitment and customer loyalty comes, is for example very difficult to imitate, hardly have the similar substitute and hardly one can get it in the open market.

The inherent predominance of such factor is because of its nature. For example, as we know that any tangible asset is no longer a scarce resource, so in such a scenario the only non-replicable, unique and with different competitive advantage the only defined proprietary is the Intangible assets. It is more worthy and is a specific factor to work as a competitive advantage for a business .

The very common and measurable factor that is the ratio of market value to asset replacement value is one of the indicators to judge the performance of intangible assets. This ratio is found to have very high value for companies that have proven brand, strong distribution set ups and R&D capabilities.

In short the value of intangible assets is worth, a factor of being distinctive in relation to competitive advantage and a tool to evaluate the soft aspects of a business and an Organization. Its real acceptance and upcoming issues for the stock market and Accounting norms must in near future make it mandatory for each and every company to disclose it in its Balance Sheet and must be considered before making a business decision, so that the healthy and economically viable and worthy decision would come into the market.

Intangible Assets Upcoming Issues / Jyotsna

ICWA, 5years Industrial experience in Auditing,Marketing,Accounting, Research,Publication,Teaching and Finance.
A passion towards learning and getting knowledge and very keen towards any knowledge.