Roger Sinclair shows the value of experience when he surveys the history of reporting on brands. He describes a time when firms would add brand values to their balance sheet. The challenge was there was no recognized method for doing this so firms just used whatever method they fancied. That lack of agreement on method to use meant it seemed like firms were just trying to mislead investors. This led to the issuance of “a “cease and desist” order” (Sinclair, 2016, page 168) in the UK and others countries followed suit.
Sinclair clearly has sympathy with the ultimate goal of those who were told to cease and desist. He, correctly, notes that market value has become increasingly detached from the values in financial accounting statements. In essence, it is hard to see why anyone would pay too much attention to the financial statements given a lot of the more important details about the firm’s assets aren’t entered onto them.
He also points out the obvious problem at the moment that although brands mostly aren’t classed as assets, sometimes they are — and this has nothing to do with their value. A brand is added to a balance sheet when the brand is acquired. Thus, an acquired brand is recorded but a brand of exactly the same value that was internally generated is not. My experience suggests accountants see the problem with this weird double standard — many just think allowing internally generated brand values to be recorded will be a worse problem.
Even when brand values are recorded they tend to only be adjusted down, if values increase they stay the same on the balance sheet. Sinclair suggests that there is a perfectly good accounting procedure to increase the value of brands when they go up — accretion. (“The term accretion is the opposite of impairment“, Sinclair, 2016, page 174). Again accountants don’t tend to like increasing values but not increasing the value of strengthening does mean that the recorded brand values can become increasingly meaningless over time.
The sides are quite a way apart on balance sheet recognition but it is a great debate to have.
Read: Roger Sinclair, 2016, Reporting on Brands, In Accountable Marketing: Linking Marketing Actions to Financial Performance, Edited by David W. Stewart and Craig T. Gugel, Routledge, MASB