Continuing my thoughts and ramblings on Intangibles.
Dennis and I have been discussing the need to do a better job of valuing intangibles for sometime. He picks up on the debate on IFRS.
He has the advantage of being an accountant, I merely talk to accountants and HR types about technology stuff. I am also the son of an accountant.
Accounting methods are good at valuing things like plant machinery. Accountants have developed sophisticated techniques, such as depreciation to apportion their cost and value over the life of the asset.
The accounting function has mostly done a good job of making sure monies are collected and paid on time, and that what is told to the investors and the taxman is accurate. (there are the occasional slips though) They have been doing it since Caesar’s time, improving the process on the way with techniques such as double entry bookkeeping and discounted cashflow analysis. For this they should be applauded.
Yet modern accounting faces a problem. Most of the value of a business today is not in plant or machinery. It is in the fluffy stuff like IP, Brand, and god forbid, Human Capital. Measuring the contribution that people bring to the business is becoming more important than ever.
But actually, this challenge is not new, just more obvious.
Though your balance-sheet’s a model of what balance-sheet should be, Typed and ruled with great precision in a type that all can see;
Though the grouping of the assets is commendable and clear,
And the details which are given more than usually appear;
Though investments have been valued at the sale price of the day,
And the auditor’s certificate shows everything O.K.;
One asset is omitted – and its worth I want to know,
The asset is the value of the men who run the show.
Bowman, Archibald 1938. “Reporting on the Corporate Investment”
Journal of Accountancy, May 1938 p. 399.
The only thing I would alter would be to replace men with people. Accounting hasn’t got this right yet….
HR and Accounting professionals, instead of sniping at each other, ought to work closer together.
If we don’t line management will continue to see both professions as a bureaucratic overhead.
Dennis makes this point.
But I also hope to see a real partnership between finance and HR. I see a natural affinity between HR and finance yet to date, it’s a relationship that has not been explored in the blogs or among the academic literature. | recently conversed with a financial controller who understands how financial metrics are important to HR professionals who are helping sales people figure out travel management packages on behalf of clients
There is a rich vein of HR research on measuring human capital. I’d like to see Fitz-enz on the reading list for both HR and Accountants. I’m meeting up with Peter Howes, CEO of INFOHRM next week. He is the smartest guy on Human capital analytics I know. HR executives are beginning to wake up to the power that accurate data, well analysed, gives them. This is good for business here in enterpriseyland. Good data requires sound, solid transaction systems….
Last week at the SAP HR conference in Germany, the SAP CFO spoke how the changes in the finance function at SAP are mirroring the changes in HR. Interesting times. Once the slides are online, I’ll provide a link..