Valuing intangibles is hard Accountants are required to identify, recognise and value intangibles to be disclosed in financial reports. Subsequently, auditors are required to gather sufficient appropriate audit evidence to support the amounts recognised and disclosed in financial reports and then include sufficient detail of this in their audit report. There's a huge amount of work that goes into it and we are constantly reminded by regulators how hard that continues to be in practice. ASIC's July 2018 Media Release listed findings from its review of 31 December 2017 financial reports and issues relating to intangible assets accounted for 5 out of the 20 findings in those reviews. In the efforts of enabling improved and consistent outcomes while enhancing audit quality, the Australian Auditing Standards Board have recently invited professionals to comment on ED 03/18 around estimation uncertainty and the quality of audit evidence supporting accounting estimates. We are repeatedly reminded how much we struggle to value intangibles.
'We work in the area of intangibles.' - Duncan Young, Head of Health and Wellbeing at Lend Lease.
Conversations are intangible. You can't see them, but you can feel the effect of them. They have the ability to generate action and value and on the flip side, cause destruction. Conversations, therefore, could be considered an intangible asset. Because like those sitting on our books, they have value. Imagine if we were to bring team performance measures onto the balance sheet? All departments in an organisation, whether they be profit or cost centres already have P&Ls, so imagine if we were to bring our people performance measures (think conversation, listening, questioning, coaching, influencing skills and the like) into the mix and construct a balance sheet? Over how many years would those skills, when demonstrated by particular individuals, have a positive impact and create value. What would that tell you about the health, strength, and long term value created by your team? It's not as crazy at it seems.... In a previous life, I had the benefit of performing the audit of the San Jose Sharks. It was quite the thrill being able to do our job underneath the bleachers of HP Pavilion and have personal tours on the rooftop and through the players' (vacant) dressing rooms. And like many professional sports organisations, the players are capitalised on the balance sheet. Their value is measured. How, you might ask? Well, it's complex and confidential, but it's more than just how many goals they shot or Stanley Cup medals they brought home. You can imagine how hard it is especially when it comes to the question of impairment. Look across at your team: How would you value the impact of their conversations on the balance sheet? Do they create value for your organisation, or would you write them off to the P&L straight away? Start the conversation How can you lift the value of human capital intangibles in your organisation?