Review of brands listed as assets irks industry

By DITA DE BONI

A project aimed at reviewing the inclusion of brands in a company's statement of financial position will continue, despite opposition from corporates and ad/marketing bodies.

The Financial Reporting Standards Board plans to proceed with a project to review how brands are included on balance sheets. The board considers current accounting treatment of intangible assets, including brands, is inconsistent and wants to bring New Zealand in line with International Accounting Standards.

Industry bodies, including ad/marketers, have swamped the board with submissions opposing Exposure Draft ED-87, saying the implementation of the standard would have serious consequences on those who expend time and money to build brands.

Especially worrying is that the board is continuing with the project and offering little feedback to an industry on tenterhooks and desperate for answers.

The board is not talking publicly about the submissions and says the next step is to take ED-87 and respondents' comments to a board working group for consideration. The Business Herald understands a decision from the board will not be made until much later this year.

ED-87's biggest bugbear for ad/marketers is a proposal that some brands will not meet the criteria to be classed as intangible assets, and will be excluded from balance sheets. The standard distinguishes between intangibles internally generated and those acquired. An acquired intangible asset has a cost and can be entered on the ledger, but one developed over time has no mechanism to attribute a cost to it.

It specifies that internally generated goodwill, brands, mastheads, publishing titles, customer lists and items "similar in substance" should not be recognised as assets.

Board chairwoman Liz Hickey would not identify groups that had made either supporting or opposing submissions, and was reluctant to give any official line until all submissions had been considered and a course of action recommended to the Government-appointed Accounting Standards Review Board.

She agreed those supporting the harmonisation of standards were possibly those with a more traditional view of accounting, and "clearly the corporates are not in favour of the standard."

The Advertising Agencies Association, which has made a strenuous objection to the classification of brands, says to recognise brands only when bought and sold is "absurd."

It also takes issue with the idea that internally generated brands cannot be measured reliably.

Former AAA executive director David Innes points to the method used by Sydney-based Interbrand Pacific Brand Valuers to reliably evaluate brand worth. "Basically, it is a premium the [branded] product generates above a generic version of the product, multiplied by a reasonable payback period."

Mr Innes concurs that there have been examples of companies abusing the self-valuations of brands. He also admits that some "bean counters" consider the goodwill inherent in a brand is already factored into a company's share price.

"But whenever a company changes hands, the goodwill could be twice or three times the value of tangible assets like land, computers and furniture. And brands are largely responsible for creating that goodwill."

Not all companies include their brands on ledgers, but businesses like Nobilo, Lion Nathan and INL - which values its newspaper mastheads at around $663m - could lose millions of dollars in net asset per share valuations.

For ad/marketers, the issue is also reflective of resistance in some quarters to the increasing importance of their role in the upper echelons of a corporation.

Mr Innes says companies have to ask themselves where the wealth in a company comes from.

"The risk of these [new accounting codes] is they may weaken the commitment of a company to develop strong brands. But by God, brands have a very high value to a company and a strong and vibrant brand is more sellable than outdated computers or furniture," he says.

Several other countries are looking at harmonising their accounting standards with the international body, including Australia and South Africa.

The United States does not have a standard for intangible assets, but companies do not generally include the value of brands in their balance sheets.