Abstract
In the past few decades, the economy has moved from an industrial to a knowledge economy. Consequently, basic factors of production now no longer comprise only natural resources, capital and labour, but also intellectual capital. Despite the shift from an industrial to a knowledge economy, the accounting framework and financial reporting have not changed sufficiently to include intellectual capital. The research problem attempts to explore whether the theory of accounting should be modified for a standardised and comparable approach when accounting and reporting on intellectual capital. To solve the research problem, a literature review and content analysis on corporate annual reports were used. The results of this study indicate that the theory of accounting should be modified to ensure a standardised and comparable approach when accounting and reporting on intellectual capital in corporate annual reports.
Highlights
The business environment has seen and experienced a dramatic increase in the number of companies that hold intellectual capital in the form of knowledge, brands, competitive advantage, patents, customer relationships, human capital, research and development, and trademarks (Roslender, 2000:35)
This is as a result of inherent difficulties in either identifying the transactions and/or other events to be measured, or in devising and applying measurement and presentation techniques capable of conveying a message that is in line with those transactions and/or events
The research focuses on prior literature of which the main focus has been on the measurement, recognition and disclosure of intellectual capital in financial reporting
Summary
The business environment has seen and experienced a dramatic increase in the number of companies that hold intellectual capital in the form of knowledge, brands, competitive advantage, patents, customer relationships, human capital, research and development, and trademarks (Roslender, 2000:35). The Conceptual Framework for Financial Reporting (IASB, 2011:A34) further states that the reason for non-recognition of these assets is the fact that there exists a degree of risk that the information about these assets will be a less than faithful representation of what the information purports to represent. This is as a result of inherent difficulties in either identifying the transactions and/or other events to be measured, or in devising and applying measurement and presentation techniques capable of conveying a message that is in line with those transactions and/or events. Both the accounting and reporting of intellectual capital are, important if the stakeholders of a company are to be allowed the opportunity to make informed investment and other decisions
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