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Tips and tricks from your IP specialists

Benefits of reporting intellectual property on balance sheets and financial statements

Oddly enough intangible assets, in particular intellectual property (IP) assets are either: (i) not reported, or (ii) under-reported in balance sheets and financial statements. Though our  recommendations are found at the end of this article, it worth mentioning that these issues have existed for some period of time, as already in 2016, Professor Denoncourt clearly indicated in her research publication that: 

“According to Generally Accepted Accounting Principles (GAAP), internally generated intangible IP assets are not reported as assets on the balance sheet of the company that created them. Consequently, valuing the IP assets and evaluating the acquisition price was hampered by the lack of publicly disclosed corporate narrative IP information to complement the off balance sheet figure. As a result, shareholders found assessing the impact of the licensing and sale of the former Motorola Mobility IP assets to Lenovo on their shareholding difficult.”

“... where IP assets are recorded simply as an “expense” in the company’s balance sheet without further supplementary narrative disclosure, the value of those IP assets may be under-reported for corporate governance purposes and thus neither true nor fair—a legal issue.”

“corporate law needs to ensure that such increasingly valuable assets, for which directors are responsible, are not ignored or hidden from shareholders and the public. If traditional accounting for IP is an ineffectual gatekeeper of the status quo because accounting statements cannot adequately document how IP assets relate to business performance, then the law must step up and confront the challenge of communicating this information”;

Others have addressed the issue of under-reporting, including:

  • Mr. Jeremy Josse, who wrote in SeekingAlpha that: “the writing down of intangible intellectual property (IP), and ultimately modern innovation itself, is creating an increasing distortion in modern valuation and investment theory.  It can no longer be ignored”, and that “the methods for capitalizing and valuing IP are not straightforward and inevitably require future views...”;

  • a series of Investopedia articles, which indicated that “the true market value of this type of property is often difficult to determine”, especially as a capital asset within a company  (May 2021 article). A month and half later, in a July 2021 article, it was stated that “intangible assets are only listed on a company's balance sheet if they are acquired assets and assets with an identifiable value and useful lifespan that can thus be amortized”. In other words, “the difficulty assigning value stems from the uncertainty of their future benefits. Also, the useful life of an intangible asset can be either identifiable or non-identifiable.” 

Similarly, IVSC Membership and Standards Recognition Board member and colleague, Mr. Drew Dorweiler, adds that “...some assets (purchased goodwill) are not amortized. And amortization occurs differently for tax across countries and between US GAAP and IFRS.” He adds: “In the realm of intangible assets, a longstanding conflict exists between the financial report (accounting) and valuation treatment of such assets.  Typically, internally-developed IP does not appear on balance sheets; acquired IP is reported at acquisition cost.  Accounting principles often apply either an amortization treatment or a “lower of cost or market” write down of intangible assets.  As increases in market value of intangible assets are rarely recognized on financial statements, undervaluation thereof may frequently result.”

Current efforts in improving intangible asset reporting

Different organizations are attempting to improve the way in which intangible assets are being reported in financial documentation. For instance, IAS 38 - Intangible Assets seeks to “prescribe the accounting treatment for intangible assets that are not dealt with specifically in another Standard. This Standard requires an entity to recognise an intangible asset if, and only if, specified criteria are met. The Standard also specifies how to measure the carrying amount of intangible assets and requires specified disclosures about intangible assets.” It is noted in IAS 38 that it “...must be read in the context of its objective and the Basis for Conclusions, the Preface to IFRS Standards and the Conceptual Framework for Financial Reporting. IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors provides a basis for selecting and applying accounting policies in the absence of explicit guidance.” According to paragraph 1.2 of the IFRS 2023 Conceptual Framework for Financial Reporting:

“The objective of general purpose financial reporting is to provide financial information about the reporting entity that is useful to existing and potential investors, lenders and other creditors in making decisions relating to providing resources to the entity. Those decisions involve decisions about:

  1. buying, selling or holding equity and debt instruments;

  2. providing or settling loans and other forms of credit; or

  3. exercising rights to vote on, or otherwise influence, management’s actions that affect the use of the entity’s economic resources. 

As a testament to improving IP valuation and applauding the efforts of WIPO Director General Darren Tang and Assistant Director General Marco Alemán, both the International Valuation Standards Council (IVSC) and the World Intellectual Property Office (WIPO) entered into a Memorandum of Understanding, which according to its press release (February 15, 2023) allows for the “ of information and expertise between the two organizations, and will include collaboration in research and development activities, training and capacity building, and the promotion of best practices in the valuation of intellectual property and other intangible assets.”

In this vein, new empirical studies suggest that stakeholders and investors wish to see better reporting of IP assets. In this regard, the United Kingdom Endorsement Board (UKEB) has published a report (March 2023) and a user survey on accounting for intangibles (closed as of October 2023). In its report, the UKEB underlined the importance that “...any changes to recognition and measurement of intangibles on the balance sheet would require careful consideration of the relevance and reliability of the financial information while also balancing the cost and benefit of providing the information” (at paragraph 19 of the Report). Speaking to these efforts, Professor Denoncourt adds: “fortunately, the UKEB currently has an active Intangibles Research Project.  The European Accounting Association is likely to follow with its own project soon.” She further adds that: “An important factor from the accounting perspective is whether the value of the intangible assets amounts to a 'material' disclosure. 'Materiality' involves determining whether the information is sufficiently significant that it would impact investor's decision-making. Only then will the intangible asset be recorded and reported in the firm's financial statements.”

Benefits of reporting intangible assets and intellectual property

Increased transparency and stronger reporting of intangible assets, including intellectual property assets, on financial documentation would certainly allow for:

  1. more reliable and robust IP valuations that can be used for:

    1. attracting investment;

    2. knowing the monetary value of the IP asset (itself) and the business valuation (as a whole);

    3. transactional purposes, including: exits, mergers and acquisitions (M&A), licensing and franchising (royalties, etc.), product launches and expansions into foreign markets, as well as the reasons continued below.

  2. optimized returns from various tax incentivization programs, including:

    1. patent (or IP) box regimes where they exist. It is worth mentioning that the Canadian federal government is considering the creation of such patent box regime (see here); 

    2. Other innovation and IP-related grant and incentive programs;

  3. optimized transfer pricing and business tax treatment (OECD), where applicable;

  4. a shift in the way IP assets are viewed by the international regulatory framework (Basel). This could also increase banks' credit risk appetite as it relates to IP-backed financing. Under Basel, financial collateral (ex.: cash) and tangible collateral that is sufficiently liquid and realizable if a borrower defaults (i.e., there exists a secondary market for the sale of such collateral) offer valid credit protection and hence reduce a bank's credit risk. This is not the case for intangible assets, resulting in higher credit risk and, in turn, higher cost of borrowing for IP-based companies;

  5. insurance assessments, in particular for the procurement of IP, cyber and business insurance, as well as the financial assessment of risk; and

  6. obtaining clarity on potential risk mitigation strategies, based on numbers.

So, now that we understand the problem and positive business impacts - the benefits of reporting - why shouldn’t a business better report their intangible assets - a business asset? especially in today’s knowledge (or intangibles) economy where “90% of the value of S&P 500 - listed companies was accounted for by intangible assets, such as rights, intellectual property (IP), data, goodwill and software, as opposed to actual physical objects.”(see Ocean Tomo’s Study).

How does a business report intangible assets, IP and goodwill

In numbers we trust. In order to enter various transactions, including lender and lendee (lending), buyer and seller (M&A) relationships, the parties must be able to trust the numbers, derived from multiple intangible assets, including intellectual property (i.e., domain names, social media, customer lists, traditional IP rights) and goodwill (i.e., reputation), which are contained within balance sheets, financial statements and projections. Some IP-related metrics (or comparatives) that can considered are as follows:

  • IP securitization costs (i.e., professional honorarium, filing fees, maintenance fees, and other related fees);

  • Duration of IP right;

  • The number and value of licensing agreements;

  • Revenue generated by each license (i.e., on a per IP right basis);

  • Licensing return on investment (ROI) – prosecution costs subtracted from revenue generated via licensing;

  • litigation awards in one or more jurisdictions, as well as corresponding litigation fees;

  • Comparative intellectual property data from marketing and business intelligence reports; 

  • Proper use of accounting standards and methodologies (IAS, IFRS, GAAP, IVSC, etc.);

  • Amongst others.


From the above, improved reporting of intangible assets, including intellectual property, should only have a net positive impact for businesses, and must be project managed to ensure a holistic overview of your business.

Need additional information? contact us


The author, David Durand, B.Sc., LL.L. (author of the chapter titled What’s the Big Idea? The Crossroads Between Investment and IP) would like to thank Prof. Janice Denoncourt,

BA, LLM, GAICD, PhD, FRSA, SFHEA, Fellow RSA (member of the Academic Advisory Group to the UKEB, publications), Kiriakoula Hatzikiriakos (author of Secured Lending in Intellectual Property, LexisNexis) and Drew Dorweiler 卓维 FRICS FCBV MBA CPA ABV ASA CVA CBA CFE for their valuable insights.


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