Intangible Values in Financial Accounting and Reporting : An Analysis From the Perspective of Financial Analysts

Academics and practitioners argue that intangible values have become significant value drivers of today’s economy. Major production inputs no longer comprise of property, plant and equipment, but rather of brands, knowledge and other technological innovation. Based on this notion, information on such phenomena is supposedly crucial for existing and potential capital providers in making decisions whether to allocate resources to a company. This thesis examines the information use and needs of financial analysts with respect to intangible values. The purpose is to shed light on the usefulness of such information from the perspective of one of the primary user groups of IFRSs. FOREWORD 5 ACKNOWLEDGEMENTS 7 BRIEF CONTENTS 8 TABLE OF CONTENTS 10 ABSTRACT 15 ZUSAMMENFASSUNG 16 LIST OF ABBREVIATIONS 17 LIST OF FIGURES 22 LIST OF TABLES 25 1. INTRODUCTION 27 1.1. Relevance and Motivation of this Study 27 1.2. Purpose and Methodology of this Study 29 2. THE FUNDAMENTALS OF FINANCIAL ACCOUNTING AND REPORTING 33 2.1. Introduction to the Chapter 33 2.2. Justification for the Existence of Financial Accounting and Reporting 33 2.2.1. Neoclassical Economic and Finance Theory 34 2.2.2. New Institutional Economics and Principal Agent Theory 40 2.2.3. Summary and Consequences for the Design of Financial Accounting and Reporting 47 2.3. Principles of Capital Markets-Oriented Financial Accounting and Reporting 50 2.3.1. Primary User Group and Objectives of International Financial Reporting Standards 50 2.3.2. Definition and Criteria of Decision-Useful Information 54 2.4. Preliminary Summary 59 3. FOUNDATION AND CHALLENGES OF INTANGIBLE VALUES IN FINANCIAL ACCOUNTING AND REPORTING 61 3.1. Introduction to the Chapter 61 3.2. Characteristics and Attributes of Intangibles 61 3.2.1. Definition and Distinction of Intangibles 62 3.2.2. Economic Properties of Intangible Values 66 3.2.3. Classification of Intangible Values 71 3.3. Intangibles and International Financial Reporting Standards 78 3.3.1. Initial Recognition and Measurement of Intangible Assets 79 3.3.2. Subsequent Measurement 98 3.3.3. Current Disclosure Requirements for Intangible Assets 99 3.3.4. Constraints and their Impact 100 3.4. Concepts to Improve Financial Accounting and Reporting of Intangible Values 108 3.4.1. Extended Reporting within the Classic Presentation Formats 108 3.4.2. Proposals for an Extended Business Reporting of Intangible Values 115 3.5. Consequences for the Further Analysis 134 4. FINANCIAL ANALYSTS AS USERS OF FINANCIAL ACCOUNTING AND REPORTING INFORMATION 136 4.1. Introduction to the Chapter 136 4.2. Fundamentals of Financial Analysts 137 4.2.1. Definition and Responsibilities of Financial Analysts 137 4.2.2. Classification and Different Types of Financial Analysts 141 4.2.3. Financial Analysts as Providers of Useful Information 152 4.3. The Elements of Financial Analysts’ Decision-Making 157 4.3.1. Collecting Information 158 4.3.2. Information Processing 162 4.3.3. Distribution of Information 170 4.4. Financial Analysts and Information on Intangible Values 171 4.4.1. Methods Employed by Equity Analysts 171 4.4.2. Methods Employed by Fixed Income Analysts 182 4.4.3. Behavioral Aspects 185 4.4.4. Other Aspects 189 4.5. Summary and Implications for this Study 189 5. EMPIRICAL ANALYSES OF THE PERSPECTIVE OF FINANCIAL ANALYSTS ON INFORMATION ABOUT INTANGIBLES 192 5.1. Introduction to the Chapter 192 5.2. Content-Analysis of Sell-Side Research Reports 195 5.2.1. Purpose of this Content Analysis 195 5.2.2. General Objectives and Methodology of Content Analysis 196 5.2.3. Prior Content Analyses in Accounting Research 200 5.2.4. Research Gap and Hypotheses for this Study 210 5.2.5. Research Design of this Study 217 5.2.6. Validity and Reliability of the Content Analysis 235 5.2.7. Findings and Discussion 239 5.2.8. Preliminary Summary 297 5.3. Experimental Survey 300 5.3.1. Objectives of the Survey 300 5.3.2. Sample and Data Collection Procedures 302 5.3.3. Survey Structure and Applied Statistical Tests 305 5.3.4. Response Rate and External Validity 339 5.3.5. Findings and Discussion 346 5.3.6. Preliminary Summary 423 5.4. Limitations of the Selected Methodologies 425 6. SUMMARY AND CONSEQUENCES FOR REPORTING INTANGIBLE VALUES 427 6.1. Introduction to the Chapter 427 6.2. Summary and Implications of the Findings 427 6.3. Recommendations for Accounting and Reporting Intangible Values 434 6.4. Future Prospects 437 APPENDIX 440 Table of Appendices 440 Appendix 1: List of Research Reports (Content Analysis) 442 Appendix 2: Description of the Criteria included in the Intangible Score 447 Appendix 3: Tests of Significance (Content Analysis) 451 Appendix 4: Intangible Indicators by Recommendation and Report Year 457 Appendix 5: Intangible Indicators by Industry 459 Appendix 6: Intangible Indicators by Maturity, M/B, MC, Total Assets, ROA 461 Appendix 7: Screenshots of the Experimental Survey 463 Appendix 8: Measurement, Evaluation and Estimation in Conjoint Analysis 471 Appendix 9: Complete Profile List (Conjoint Analysis: Orthogonal Design) 472 Appendix 10: Conjoint Analysis – SPSS Command Syntax 473 Appendix 11: Employment of Financial Analysts 474 Appendix 12: Experience of Financial Analysts 475 Appendix 13: Frequency of Number of Industries Covered (Total Sample) 476 Appendix 14: Number of Industries Covered (Comparisons) 477 Appendix 15: Industries Covered by Financial Analysts 478 Appendix 16: Market Capitalization Covered Companies & Covered Regions 479 Appendix 17: Information Sources and Annual Report Sections 480 Appendix 18: Preferred Information Sources (Comparisons) 481 Appendix 19: Annual Report Sections (Comparisons) 483 Appendix 20: Number of Valuation Methods Selected (Total Sample) 485 Appendix 21: Frequency of Valuation Methods Selected (Comparisons) 486 Appendix 22: Number of Valuation Methods Selected (Comparisons) 487 Appendix 23: Preferred Valuation Methods (Comparisons) 488 Appendix 24: Non-Financial vs. Financial Information Preference Score 490 Appendix 25: Valuation Inputs (Comparisons) 491 Appendix 26: Frequency of Profile Ratings 497 Appendix 27: Pearson’s r and Kendall’s Ƭ (Analyst Groups) 500 Appendix 28: Paired T-Test of Averaged Relative Importance Weights 501 Appendix 29: General Ideas and Further Design of Intangible Reporting 503 Appendix 30: General Reporting Ideas for Intangibles (Comparisons) 504 Appendix 31: Preferences of Reporting Intangible Expenditures (Comparison) 506 Appendix 32: Further Design of Reporting Intangibles (Comparisons) 507 INDEX OF ACCOUNTING PRINCIPLES, STANDARDS AND OTHER STATUTES 510 INDEX OF SELL-SIDE RESEARCH REPORTS CITED IN THE MAIN TEXT 512 REFERENCES 515 In den letzten Jahren wurde immer wieder vorgebracht, dass immaterielle Werte zunehmend die bedeutenden Werttreiber in den Unternehmen der heutigen Zeit darstellen. Wichtige Produktionsfaktoren sind nicht mehr materielle Vermögenswerte, sondern vielmehr Marken, Wissen oder anderweitige technologische Innovationen. Basierend auf dieser Annahme, wird die Aussage getroffen, dass die Informationen über solche Phänomene in den Allokationsentscheidungen der Kapitalgeber einer Unternehmung unerlässlich sind. Die vorliegende Arbeit untersucht die Informationsverwendung durch Finanzanalysten und deren Informationsbedürfnisse in Bezug auf immaterielle Werte. Zweck der Arbeit ist es, den Nutzen solcher Informationen aus der Perspektive von einer der primären Adressatengruppe von IFRS näher zu beleuchten. Nach der Begriffsabgrenzung des immateriellen Werts, werden zunächst die aktuellen Regelungen der IFRS dargestellt sowie problematisiert und die in der Literatur diskutierten Lösungsvorschläge präsentiert. Im Anschluss werden die Grundlagen der Finanzanalysten in Bezug zu ihren Zielen, möglichen Klassifizierungen und Entscheidungsprozessen dargestellt. Im Hauptteil dieser Arbeit werden zwei empirische Studien vorgestellt, die die tatsächliche Verarbeitung von Informationen durch Finanzanalysten untersucht haben. Die erste Studie hat unter Verwendung der Inhaltsanalysetechnik Sell-Side-Research-Berichte auf die Verwendung von Information bezüglich immaterieller Werte hin untersucht. Die zweite Studie nutzte Survey-Methodik, um die Wahrnehmung von Finanzanalysten in Bezug auf immaterielle Werte zu untersuchen. Die zweite Studie beinhaltete zusätzlich einen experimentellen Teil. Zusammenfassend wurde festgestellt, dass Informationen über immaterielle Werte nützlich für die Entscheidungen von Finanzanalysten sind. Zusätzlich wurden die Bedürfnisse und Präferenzen der Analysten diskutiert, um Empfehlungen zur Berichterstattung Academics and practitioners argue that intangible values have become significant value drivers of todayĺls economy. Major production inputs no longer comprise of property, plant and equipment, but rather of brands, knowledge and other technological innovation. Based on this notion, information on such phenomena is supposedly crucial for existing and potential capital providers in making decisions whether to allocate resources to a company. Stephan Gr©ơber examines the information use and needs of financial analysts with respect to intangible values. The purpose is to shed light on the usefulness of such information from the perspective of one of the primary user groups of IFRSs. ℗l Contents ℗ʺ℗l℗l℗l℗l℗l℗l℗l Fundamentals of financial accounting and reporting ℗ʺ℗l℗l℗l℗l℗l℗l℗l Foundation and challenges of intangible values in financial accounting and reporting ℗ʺ℗l℗l℗l℗l℗l℗l℗l Financial analysts as users of financial accounting and reporting information ℗ʺ℗l℗l℗l℗l℗l℗l℗l Perspective of financial analysts on information about intangibles ℗l ℗l Target Groups ℗l ℗ʺ℗l℗l℗l℗l℗l℗l℗l Academics focusing on financial accounting and reporting, finance and investing ℗ʺ℗l℗l℗l℗l℗l℗l℗l Professionals focusing on financial accounting and reporting as well as financial analysts and other users of financial statements ℗l The Author Dr. Stephan Gr©ơber obtained his doctorate degree at the University of St. Gallen (HSG), Institute of Accounting, Control and Auditing. Academics and practitioners argue that intangible values have become significant value drivers of today's economy. Major production inputs no longer comprise of property, plant and equipment, but rather of brands, knowledge and other technological innovation. Based on this notion, information on such phenomena is supposedly crucial for existing and potential capital providers in making decisions whether to allocate resources to a company. Stephan Grüber examines the information use and needs of financial analysts with respect to intangible values. The purpose is to shed light on the usefulness of such information from the perspective of one of the primary user groups of IFRSs. Contents · Fundamentals of financial accounting and reporting · Foundation and challenges of intangible values in financial accounting and reporting · Financial analysts as users of financial accounting and reporting information · Perspective of financial analysts on information about intangibles Target Groups · Academics focusing on financial accounting and reporting, finance and investing · Professionals focusing on financial accounting and reporting as well as financial analysts and other users of financial statements The Author Dr. Stephan Grüber obtained his doctorate degree at the University of St. Gallen (HSG), Institute of Accounting, Control and Auditing Front Matter....Pages I-XXX Introduction....Pages 1-6 The Fundamentals of Financial Accounting and Reporting....Pages 7-34 Foundation and Challenges of Intangible Values in Financial Accounting and Reporting....Pages 35-109 Financial Analysts as Users of Financial Accounting and Reporting Information....Pages 110-165 Empirical Analyses of the Perspective of Financial Analysts on Information about Intangibles....Pages 166-400 Summary and Consequences for Reporting Intangible Values....Pages 401-413 Back Matter....Pages 415-530