Abstract
Many incidents of accounting fraud and audit failure continuously provide evidence that the quality of management-supplied information sources is clearly insufficient, creating a transparency barrier between management and shareholders in the 21st century system of corporate governance. Towards resolving this issue, strategic management theory assists with identifying the investments in intangibles-related activities that add strategic value in today's corporations. Knowledge management theory further supports an innovative classification approach, providing for significantly higher accounting recognition of these intangible assets. The agency assurance approach calls for a completely new accounting standard in which the differentiation costs of today's readily identifiable, explicit knowledge-based intangibles are capitalised as assets, while investments in tacit knowledge-based activities remain as period expenses. Capitalisation not only validates the strategic value of differentiation costs but also, simultaneously, provides the cost basis for management's monitoring of the underlying intangible assets.
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