Corporate Disclosure of Intangibles: A Comparative Study of Practices among Indian, US, and Japanese Companies

Abstract

Today, the methods which create value for companies have undergone a sea change. In the new globalized economy, when companies have edge to edge competition, the intangibles like strategies, brands, market leadership, management policies, etc., play a major role in creating value for a company. Very few intangibles are covered under the mandatory rules and regulations of accounting all over the world. Despite these regulatory limitations, an increasing number of companies are voluntarily opting to include information in their list of intangibles in the notes to their annual accounts or as an appendix in a narrative form. The narrative reporting on intangibles has not yet been regularized by various accounting authorities, but to have competitive edge in the market, a number of companies are voluntarily disclosing information on intangibles in their business review section along with the mandatory information on intangibles in the financial accounts. This study examined and compared the various disclosure practices of intangibles of the top one hundred Indian, US, and Japanese companies for a period of five years, i.e., 2001–2005. The study examined the type and extent of information on intangibles being disclosed by the companies with the help of a disclosure Index. The index of disclosure of intangibles used in this paper consisted of an extensive list of 180 items, including both mandatory as well as voluntary disclosure items. This study reveals that the countries under study, i.e., India, US, and Japan, have shown a significant improvement in their overall disclosure scores over the five year period. The Japanese companies have shown the maximum improvement of 59 per cent in the overall disclosure scores over five year period, followed by US (42 %) and Indian companies (31%). Secondly, ‘IPRS and goodwill and other intangibles’ group showed maximum increase in five years by the sample companies of all the three countries under study. On the basis of the results, it can be suggested that Indian companies need to improve their disclosure practices in the areas of ‘strategy and competition’ and ‘market and customer’. Secondly, the accounting authorities should endeavour to regularize the narrative reporting on intangibles. A number of organizations are working to improve disclosure of non-financial items. Some of them are International Accounting Standard Board (IASB), Financial Accounting Standard Board (FASB), Organisation for Economic Cooperation and Development (OECD), and European Commission (EC).