Small and medium size enterprises and the knowledge economy. Assessing the relevance of intangible asset valuation, reporting and management initiatives
| Pages | 131-143 |
| DOI | https://doi.org/10.1108/13581981011033998 |
| Published date | 11 May 2010 |
| Date | 11 May 2010 |
| Author | Robert Watson |
| Subject Matter | Accounting & finance |
THEMED PAPER
Small and medium size
enterprises and the knowledge
economy
Assessing the relevance of intangible
asset valuation, reporting
and management initiatives
Robert Watson
Instituto de Empresa Business School, Madrid, Spain
Abstract
Purpose – The growth of the so-called “knowledge economy”, whereby the primary sources of firm
value are claimed to be an increasing reliance upon the exploitation and management of intangible
assets that are not reported in company balance sheets, has led to a questioning of the continued
relevance of conventional financial reporting and internal management information and control
systems. The purpose of this paper is to evaluate the criticisms and proposed alternatives to
conventional financial reporting and management control practices. As public policy makers appear to
be increasingly convinced that there is an economically damaging “gap” in terms of small and medium
size enterprise (SME) stakeholder understanding of intangible asset management, the paper also
evaluates the arguments and evidence concerning the applicability and relevance of the problems and
proposed alternatives to SMEs.
Design/methodology/approach – The paper reviews the criticisms, empirical evidence and
proposals to improve financial reporting and internal management control practices by incorporating
information on the value of intangible assets and in developing tools for better managing these
assets.
Findings – The problems associated with identifying and valuing intangible assets and the fact
that capitalising income (net profit) using an appropriate risk-adjusted cost-of-capital provides an
adequate estimate of value, appears to make most accounting researchers highly sceptical of either the
need or desirability of including intangible asset values in the balance sheet. Moreover, the suggestion
that firms – particularly SMEs – could increase their value by adopting more formal and
comprehensive intangible asset management systems is highly suspect and appears not to be borne
out in practice.
Research limitations/implications – The case study evidence in relation to the benefits to SMEs
from adopting such tools – even when such tools have been specifically designed for SMEs and, along
with consultancy advice, are made freely available to firms – is not encouraging and, in the view of
this writer, does not provide any firm justification for significant further public involvement beyond
considering including the topic in business start up course syllabuses.
Originality/value – The paper provides the first review of the relevance to the SME sector of the by
now extensive conceptual and empirical body of work on the valuation, reporting and management of
intangible assets.
Keywords Knowledge economy,Financial reporting, Small to medium-sizedenterprises,
Intangible assets
Paper type Case study
The current issue and full text archive of this journal is available at
www.emeraldinsight.com/1358-1988.htm
SMEs and
the knowledge
economy
131
Journal of Financial Regulation and
Compliance
Vol. 18 No. 2, 2010
pp. 131-143
qEmerald Group Publishing Limited
1358-1988
DOI 10.1108/13581981011033998
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