New framework encourages companies to disclose intangible assets

Singapore companies will receive more guidance on how to disclose and communicate the value of their intangible assets, under a new framework that is among the first of its kind globally.

The Intangibles Disclosure Framework (IDF) was launched on Monday by the Intellectual Property Office of Singapore (IPOS) and Accounting and Corporate Regulatory Authority (ACRA).

The framework is part of the Singapore IP Strategy 2030, an initiative supporting technology innovation in the city-state. Led by IPOS and ACRA, the IDF was developed by an industry working group with representatives from the accounting, valuation, legal and financial sectors.

The framework provides guidelines on how companies can identify and disclose various non-physical assets – such as brand value, patents and registered designs – to the likes of lenders, board members and investors.

Companies are also urged to disclose intangible assets beyond those under accounting standards, including human capital and internally generated intangibles.

Second Minister for Finance Indranee Rajah said: “Improving intangible asset disclosures can lead to better investment decisions, improved risk management, and increased competitiveness in our markets.”

The roll-out of the IDF comes amid a boom in intangible assets, driven by the rise of the digital economy. Such assets make up more than 90 per cent of the value from S&P 500 companies.

This is also visible in Singapore, where the market is rapidly moving towards technology and life sciences, Ms Srividya Gopal, managing director and Southeast Asia leader at Kroll, told The Business Times.

“You can no longer look at a balance sheet and get a picture of the company now,” she said.

“Earlier, there were companies where the market capitalisation and the balance sheet value were more or less the same, primarily because the assets were in real estate, shipping, and oil and gas. Today, it is completely different,” she added.

However, there is still a lack of consistency in how companies identify and communicate about intangible assets to their stakeholders. Many companies are also unaware of how disclosing intangible assets can help them in securing deals or loans.

A recent IPOS survey showed that four out of five enterprises wished they had more opportunities to use their intangible assets for business, including obtaining financing.

“Some companies haven’t really thought about it; they don’t realise the full potential of what they have,” said Ms Gopal, who is also a member of the working group behind the IDF. She added that this is where the IDF can be helpful.

Another member of the working group, Mr Murli Ravi, said that intangible asset disclosures can help companies differentiate themselves from their competitors.

“Financial institutions, venture capitalists and valuation firms could use this information to potentially extend credit lines or provide higher valuations for an enterprise’s value,” said Mr Ravi, who is co-founder and managing partner of venture firm Tin Men Capital.

Untangling intangibles

The framework’s guidelines are centred on four pillars:

• Strategy: To help enterprises communicate how their intangible assets contribute to their overall corporate strategy
• Identification: To recommend how enterprises should categorise intangible assets based on their nature and characteristics, facilitating comparability
• Measurement: To guide enterprises and stakeholders to make better assessments of the performance of enterprises’ intangible assets through relevant metrics
• Management: To help enterprises identify, assess, and manage risks and opportunities related to their intangible assets

Under the measurement pillar, the IDF indicates that it is optional for companies to disclose the monetary value of intangible assets. The working group did not want to impose costs on companies and make the framework onerous, said Ms Gopal.

“Instead, we want businesses and stakeholders to understand the value of this intangible asset framework. Once they realise the value of this, they will be willing to pay for assessing the monetary value of the intangibles,” she said.

Industry players expressed support for the IDF. Mr Lie Kok Keong, council chairman of the Institute of Valuers and Appraisers, Singapore, said that the framework can narrow the “information gaps” around intangible assets.

Likewise, Mrs Ong-Ang Ai Boon, director of the Association of Banks in Singapore, said that the IDF is a “good first step” for Singapore to be a trusted hub in the knowledge economy.

Other IP resources

Beyond the IDF, other initiatives were introduced on Monday to help businesses manage their intellectual property (IP).

One of them is the GoBusiness IP Grow platform, which connects enterprises with a suite of service providers in the IP and intangible assets space, as well as an e-adviser tool for live and customised recommendations.

Another is the IP Ready programme, where companies are paired with an IP strategist and get help on their strategy, management processes, and skills building.

The Singapore Business Federation will also help local businesses build IP capacity via its GlobalConnect@SBF’s internationalisation services, market advisers, and global contacts. THE BUSINESS TIMES
 

Source: The Straits Times ©️ SPH Media Limited. Permission required for reproduction.