The shift to a knowledge-based economy has created significant challenges for accounting and corporate reporting. This presentation gives an overview of the challenges and opportunities facing accountants and businesspeople today.
3. It is a beautifully-balanced system
Assets Liabilities Income Statement
dr/cr dr/cr dr/cr
+/- -/+ -/+
Equity
dr/cr
-/+
ICA-3
4. It told the story of operations
Assets Liabilities Income Statement
Cash Revenue
A/R A/P
Finished COGS
WIP Loans
Raw mat. SG&A
Equipment Net income
Building
Land Equity
ICA-4
7. Weโve lost the operating story
Assets Liabilities Income Statement
Cash Revenue
A/R A/P
Fin COGS
WIP Loans
Raw mat. SG&A
IT equipmt
Equipment Net income
Building
Land Equity
ICA-7
9. How knowledge is different
โข It is not finite
โข It is usually not owned
โข It is usually not separate (exception IP)
โข The value is determined by the total
potential market
ICA-9
10. In an organization
Knowledge = Intellectual Capital
โข Human Capital
competencies, skills
โข Network Capital
relationships with customers, suppliers and
partners
โข Structural Capital
processes and intellectual property
โข Strategy/business recipe
ICA-10
11. Knowledge reporting today
โข Intangibles booked on balance sheet only
when acquired through a transaction
โข Valuation based on discounted cash flows
โข Internally-created intangibles not reported
โข Almost all spending on intangibles flows
through the income statement (but not
broken out) โeven though this spending
represents an investment
ICA-11
12. Related trends
โข IFRS
International financial reporting standards
โข Fair Value
โข XBRL
Extensible business reporting language
โข EBRC
Enhanced business reporting consortium
www.ebr360.org
ICA-12
13. Agenda for the future
โข Inventory
โข Cost (intellectual capital expenditure)
โข Assessment (strength, outlook, risk)
โข Performance (leading indicators)
(see details in appendices)
These eventually will be housed in
accounting. Not common today.
ICA-13
14. Want to learn more?
โข Visit:
www.i-capitaladvisors.com
www.icknowledgecenter.com
โข Sign up for e-newsletter:
Sheet going around the room or
email adams@i-capitaladvisors.com
โข Call 781-729-9650
ICA-14
15. Accountants are key to unlocking the
power of corporate knowledgeโฆ..
ICA-15
18. Inventory continued
โข Structural Capital:
โ Key value creation processes (related to how
to you get paid)
โ Key business processes (such as finance and
human resources)
โ Documents/captured knowledge (training
manuals, know-how)
โ Intellectual property (patents, trademarks)
ICA-18
19. i-capex =
intellectual capital expenditure
โข Every company continuously invests in
intangibles (IT/processes, training, branding,
innovation)
โข Cost is actually the one universal and tangible
metric available for intangibles
โข These costs should recorded in an IC inventory
โข Emerging accounting research about cost
http://www.melbourneinstitute.com/wp/wp2005n
15.pdf
ICA-19
20. Assessment
โข Judges the strength and suitability of intellectual
capital
โข Good questions are around current capacity,
future capacity and risk
โข Focus should be assets versus strategy (e.g. do
we have the right competencies to fulfill our
strategy)
โข Scale can be 1-5, red/yellow/green, etc.
โข Good sources: management team, internal and
external stakeholders
This is a new kind of balance sheet
ICA-20
21. Performance
โข Focus here is on linking financial metrics with
leading indicators
โข Common approaches:
โ Balanced Scorecard
โ Dashboards
โ Performance management systems
โข Ex: if an organization is working toward a goal of
lowering returns by improving a customer
service process, how will can progress be
tracked?
This is a new kind of income statement
ICA-21