Brands on the Balance Sheet
Elevating Brands through IP Reporting
The continuing exclusion of intangible assets from the balance sheet can make communicating the importance and value of brands difficult, but changes are afoot, as Maura O’Malley discovers.
Most of a company’s value is increasingly tied up in its intellectual property (IP). Yet, accounting standards still prevent internally developed intangible assets associated with brands from being included on balance sheets. This includes trademarks. This can make it difficult to convey to people in the business and externally how crucial and how valuable these assets are the company—and all those who might benefit from that value.
So how can you better communicate the importance of your brand to internal and external stakeholders? Or gain a better understanding of how, or if, IP value is reported on your company’s balance sheet? These critical questions will be considered at today’s capsule keynote session today’s session, Level Up: Elevating Brands Through IP Reporting (Wednesday, May 22, 9:30 am–10:00 am).
“We are often so caught up in the day-to-day work to build and protect our companies’ brands that we do not focus on communicating with stakeholders about brand value.”
- Ashley Krause | RE/MAX, LLC (USA)
The two speakers, Katie Sullivan (Whirlpool Properties Inc., USA) and John Plumpe (Epsilon Economics, USA) are co-chairs of INTA’s 2022 Presidential Task Force (PTF) on IP Reporting for Brands convened by 2022 INTA President Zeeger Vink (MF Brands Group, Switzerland).
Steered by moderator Ashley Krause (RE/MAX, LLC, USA), they will dive into the findings and recommendations from the PTF report.
Ms. Krause notes: “We are often so caught up in the day-to-day work to build and protect our companies’ brands that we do not focus on communicating with stakeholders about brand value.” She adds: “We hope this session will demystify these IP-related accounting standards as well as help them better communicate with stakeholders regarding brand value and related metrics.”
Ms. Sullivan led the work stream on corporate IP reporting for brands, which identified existing global practices of IP reporting and drafted guidelines for corporate brand IP reporting. She says the report highlights that many in-house counsel “aren't plugged in” to how their brand IP is reported on balance sheets. “I hope the report gives them a jumping-off point in joining those conversations.”
She notes that the report contains a set of checklists organized by the target audience (legal leadership, business leadership, investors, etc.) with minimum and suggested information to be shared. It also has several sample slides as “thought starters” on how to show that data visually. She adds that: “trademarks is a practice where we have so much data, and one of the main questions is how to use it to effectively tell the stories relevant to our target audiences.”
“Stakeholders are often surprised to hear that their most valuable assets may not be reported on their balance sheet because accounting standards do not allow it.”
- John Plumpe | Epsilon Economics (USA)
Mr. Plumpe, an IP valuation expert, led the workstream on financial reporting for brands, which is subject to a variety of rules and regulations worldwide. He points out that accounting standards currently prevent the recognition on balance sheets of internally developed brand-related IP, so it is “atypical for companies to report the value of these assets externally with any degree of specificity.”
Mr. Plumpe adds: “Various stakeholders are often surprised to hear that their most valuable assets may not be reported on their balance sheet because accounting standards do not allow it.”
However, current movements within the accounting standards world could result in a change that would allow companies to report the value of these assets externally, he notes. INTA, at the initiative of the PTF, takes the position that, in short, this regime needs to change to allow reporting on IP value in an appropriate way.
Plumpe says INTA has engaged with the International Accounting Standards Board (IASB) and is in the advanced planning stages for engagement with other accounting standards organizations around the world.
Both the IASB and the Financial Accounting standards Board in the United States have “recently signaled interests in evaluating the current accounting standards regarding intangible assets,” Mr. Plumpe says, adding: “More to come, soon!”
“Trademarks is a practice where we have so much data, and one of the main questions is how to use it to effectively tell the stories relevant to our target audiences.”
- Katie Sullivan | Whirlpool Properties, Inc. (USA)
Discussing potential challenges, he notes that there are still issues to anticipate, such as the impact that a change in accounting standards regarding intangible assets could have on other aspects of a company’s business. “It will really depend on what the standards-setting boards decide to do, how extensive the changes are (if any), and if those changes are mandatory or suggestive. Time will tell, and INTA hopes to be a part of those conversations.”
Regarding brand valuation standards, he says, the PTF research concluded that there is still work to be done to get to a point where legal data can be incorporated into brand valuations in a cost-effective manner. He explains that brand valuations (and trademark valuations, which are closely related to brand valuations) may already be “too expensive (or not justifiable from a cost-benefit perspective) for companies of all sizes, but most notably for SMEs.”
Expanding on what she hopes participants will gain from the session, Ms. Sullivan says as an in-house counsel: ”I love to benchmark and get ideas from other companies on how they handle different issues, including reporting, so I hope people leverage the task force report for that purpose, and also feel empowered to talk to their finance colleagues about how they can be involved in external reporting.”
