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Intangible assets, intellectual capital and Balanced Scorecard

Conference Paper · September 2017

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Singidunum University
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 SUBMISSION OF FINAL PAPER
European Institute for Advanced Studies in Management
(EIASM)

13TH INTERDISCIPLINARY WORKSHOP ON INTANGIBLES AND

INTELLECTUAL CAPITAL
ANCONA, ITALY, SEPTEMBER 21-22, 2017

Candidate name
Milos Petkovic
[email protected]
Laboratory for Research in Management (GRM)
IAE Nice
University Sophia Antipolis Nice, France

Director of Thesis
professor Eric Cauvin

Co-Director of Thesis
professor Elisabeth Walliser

Paper Submitted
25.08.2017.
Nowadays in the period of global and company’s resource. The company’s
strongly competitive market, information knowledge cannot be controlled (Von Krogh,
technology and “New economics” era, 1998), but it can be coordinated and used for
intangible assets are recognized as the very achieving in advanced planned goals
important part for improving performance. (Spender, 1996). Until now, there are many
The resource based view has been changed to studies about correlation between intellectual
knowledge view in the last twenty years. capital investment and total market value or
Compared to the past, when a focus was on profit. With my study that is not discovered
the tangible assets, the production process yet, I will contribute to the management
was massive, with huge production lines, sciences. My PhD project is based on five
spaces and human labor. Today, time has main steps:
changed completely. By the study of OECD
from 1996, the current global economy was •   First step is defining intellectual
described as “an economy based on capital investment, identifying R&D
knowledge”. Knowledge economy is expenses and calculating the whole
characterized by the well-educated and value of investment (Liebovitz,
trained population that will trigger the 2000);
economic growth, dynamic information and •   Second step is defining intellectual
communication infrastructure. On the other capital and calculating the intellectual
side, companies with a good base of capital value using the Skandia
knowledge can achieve in advanced planned Intellectual Capital Value Scheme
goals, gain competitive advantage and higher (Roos, et.al, 1997);
profits (Arthur, 1996). •   Third step is calculating the
percentage of changes in the
Intellectual capital is invisible, intangible and intellectual capital and recognizing
not recognized by the current accounting the value from the investment;
standards. Accounting rules are adapted more •   Fourth is collecting the data and
to the industry era, and not to the information preparing the sample;
and knowledge era, where intangible assets •   Final step is reserved for testing my
are differencing companies between each hypothesis.
other. The accounting treatment of intangible
assets is a matter of considerable interest to There are many different definitions about
managers, investors and accounting-standard the intellectual capital investments and the
setter (Lev, Feng, 2003). Significance of my definitions differ from the purpose of
study will be proposing a project for research. Intellectual capital investment is
identifying, measuring and recognizing focused on intellectual capital creation and
intellectual capital in the financial statements, creation of future benefits (Lentjushenkova,
respecting international accounting Lapina, 2014). After defining intellectual
standards. My research question is: “How capital investment, it is necessary to classify
does the intellectual capital investment investments on: investment in IT,
influence on the total book value of a relationship investment, educational
company”. My hypothesis will prove a investment, R&D investment and investment
positive relationship between intellectual in new products and training (Edvinsson &
capital investment and total book value. My Malone, 1997). The R&D investment will be
research study is based on the knowledge- taken in my project, where I will further
based theory because knowledge is a core identify R&D expenses in the Profit and Loss
account and follow their value creation. The book value of a company (Roos, Roos,
R&D expenditures are treated by the market Dragonetti and Edvinsson, 1997). It is
as investments in intellectual capital necessary to follow parallel creation of
(Bandeira, Afonso, 2010). There are 14 research asset and intellectual capital because
research expenditures with precise a company cannot expect to develop new
accounting treatment (Warfield, Weygandt, R&D activities, if previously was not created
Kieso, 2007).  Intellectual capital investments additional intellectual capital
are investments with a purpose of gaining and (Lentjushenkova, Lapina, 2014). If we would
improving a company’s value (Molodchik, like to define, conceptualize and sum up the
2012). From the R&D expenses that will be knowledge value creation process we can
seen as capital expenses and not as define it as knowledge management, because
operational expenses, I will follow creation knowledge management can be defined as a
of research asset by the formula given by systematic coordination between people,
Aswath D. in 2009. It is highly important to technology, processes and structure that can
see R&D expenses as capital expenses, as result later on with added value or
expenses that will last more than one year and innovations (Nonaka, 1995).
that future economic benefits will happen in
the future years. The new intangible asset can In my project, I will use the Balanced
be recognized in the fin. statements only if Scorecard developed as a non-financial
can all expenses be followed and there will be performance measurement system. The
future economic benefits (IAE 38, page 14). Balanced Scorecard is composed of four
Also, by the IAS 38, R&D expenses should main components and those are: Financial,
be capitalized and seen as investments. US Customer, Internal Business Processes and
GAAP standards see these expenses as costs Learning and Growth. (Kaplan, Norton,
only. Today, accountants look at these 1992). The main reason why I chose the
expenses as operational, because they see intellectual capital definition given by
them only in the current year, without any professor Nick Bontis is because the three
future benefit expectations.     types of capital are similar and linked to the
  four main components of the Balanced
Intellectual capital or intellectual asset is Scorecard. If a company creates a strategy
transformation of knowledge to valuable with a main goal to improve its total book
asset (Steward, 1994). Intellectual capital value or create new asset, then it starts with
consists of next three elements: human first and operational level, where the
capital, structural capital and relational employees will collaborate, research and
capital. Human capital includes experience, develop. Then, it is necessary to have a
know-how, capabilities and skills of collaboration between departments, within
employees. Structural capital includes organizational structure. After internal
systems, networks, culture and other collaboration, it is necessary to develop an
organizational capabilities within the asset that meets customers’ demands that will
company. Customer capital presents attract and gain profit at the end. The
relationships with customers (Bontis, 1998), Balanced Scorecard provides a perfect
(Sveiby, 1997), (Saint Onge, 1996). balance between financial and non-financial
Intellectual capital is calculated by the components, and it is very successful
Skandia Intellectual Value Scheme formula management tool in nowadays competitive
as a difference between total market and total and knowledge-based market.
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