Tony Tollington’s book on Brand Assets is fascinating. (Accounting rules have changed a bit since he wrote it. The acronyms and rule numbers aren’t what are used nowadays but the ideas are similar). He makes fascinating notes on the politics of accounting.
The Politics Of Accounting For Intangible Assets
Tollington notes the problems with the way accounting policy treated intangible assets. Some changes have occurred since but a lot of the points remain valid. The fascinating thing to highlight, that non-accountants might not instantly think about, is just how political the setting of accounting rules are.
Indeed, Tollington was not impressed with the conceptual basis behind the UK rules. (As they were around the turn of the millennium). Still, he says that they get top marks for pragmatism.
“…capitalisation is based on almost entirely pragmatic considerations rather than any conceptual basis as to the status of goodwill as an asset.”
Tollington, 2002, page 106
In essence, the UK sought to follow the US policy. This was despite the US policy having arisen in a rather ‘arbitrary’ way.
The Accounting Standards Board Approach
To illustrate this he gives extensive details of the Accounting Standards Board hearing of September 1995. In many ways the best explanation of why the rules came about is Tollington’s summary of a commentator’s reasons for making a decision.
“* The goodwill debate had gone on too long and compromise was called for.
Tollington, 2002, page 111
* When it is very hard to choose between two alternatives, in this case between capitalized goodwill with or without amortisation, it often means it does not matter which one is chosen.”
Many committee decisions happen this way. To Tollington the accounting rules that emerged did not make much sense but at least ended the discussion.
For more on how to account for marketing see here, here, here, and here.
Read: Tony Tollington (2002) Brand Assets, Wiley Finance
