Introduction
It is estimated that the value of global intangible assets (IA) held by firms worldwide reached an all-time high of around US$74 trillion in 2021. This represented an increase in value of more than 25% since 2019. With business valuation globally being increasingly driven by IA, being able to value such assets in a reliable manner is becoming a necessity.
As part of Singapore's aim to strengthen its position as a global IA and intellectual property (IP) hub, Singapore launched the Singapore Intellectual Property Strategy 2030 (SIPS) in April 2021. A long term goal of SIPS is to build a credible and trusted IA valuation and reporting ecosystem, which, in turn, would assist businesses to unlock the benefits from their IA, contributing to their overall business strategy and value.
As part of the initial steps in developing an IA valuation and reporting ecosystem, the Intangibles Disclosure Industry Working Group developed an Intangibles Disclosure Framework (Framework), which intends to outline key principles for businesses to identify and communicate the details of their IA.
On 14 December 2022, the Accounting and Corporate Regulatory Authority (ACRA) and the Intellectual Property Office of Singapore (IPOS) launched a public consultation to gather the views of the public on the Framework and whether it will help businesses disclose their IA and improve transparency in the market.
This article will provide information on what the Framework seeks to achieve, the key principles outlined in the Framework and the rationale behind the Framework.
What the Framework intends to achieve
The starting point is to identify what the Framework intends to achieve. It is stated in the Framework that it seeks to provide stakeholders with standardised information about an enterprise's intangibles, so that they can make more informed assessments of its business and financial prospects. The Framework starts by providing a definition of an "intangible", which is a "non-monetary resource that manifests itself by its economic properties" – it does not have physical substance but grants rights and/or economic benefits to its owner.
The key principles of the Framework
While the Framework does not intend to replace or supersede existing regulatory or accounting requirements, it does identify the most important principles when it comes to the disclosure of intangibles. These are the principles of materiality, connectivity, conciseness, comparability and future orientation.
| Principle 1 - Materiality: | An enterprise should prioritise disclosing the details of the intangibles that matter most in its ability to create value over time. |
| Principle 2 - Connectivity: | An enterprise should attempt to create a strong linkage between its overall strategy, business model and financial performance when it comes to disclosing intangibles. |
| Principle 3 - Conciseness: | It is preferable that an enterprise only reports the essential points in a manner that is simple and understandable for the most effective communication with stakeholders. |
| Principle 4 - Comparability: | The disclosure of intangibles by an enterprise and how it enables the enterprise to create value should ideally be comparable with other enterprises. |
| Principle 5 - Future Orientation: | An enterprise should articulate how the selected information and figures on intangibles disclosed contribute to its ability to create value in the future. |
The key principles in the Framework are anchored on the four (4) pillars of Strategy, Identification, Measurement and Management:
| Strategy Pillar | Identification Pillar | Measurement Pillar | Management Pillar |
| This Pillar supports the disclosure and communication of how intangibles are relevant to, and used in, an enterprise's overall corporate strategy, and aims to give stakeholders a better understanding of how an enterprise uses its intangibles to create returns for its investors. |
This Pillar includes the definition of an "intangible", with recommendations on how an enterprise can describe the nature and characteristics of its intangibles. In addition, this Pillar proposes for intangibles to be classified into six (6) categories. The purpose of having definitions for the various types of intangibles is to facilitate and improve their comparability. |
This Pillar guides an enterprise on how it should disclose the performance metrics and drivers of its intangibles. This will enable both an enterprise and its stakeholders to better assess and understand the financial health and performance of an enterprise's intangibles. Any information to be disclosed that is value-related should ideally be quantitative in nature and capable of assisting in the valuation of said intangibles. |
This Pillar provides guidance on how an enterprise may disclose the manner in which it identifies, assesses and manages the risks and opportunities related to its intangibles. This Pillar also recommends that an enterprise discloses how its processes for the identification, assessment and management of intangibles-related risks are integrated into its overall group risk management practices. |
The rationale of the Framework
There is an understanding that with a greater push towards digitalisation, value creation for businesses will be increasingly driven by intangibles. In terms of IA valuation, transparency and the standardisation of corporate reporting can propel the development of valuation methodologies for a digital economy. Following on from this, a robust disclosure and valuation framework can underpin a growth flywheel of value creation from intangibles.
Ultimately, the Framework aims to provide stakeholders with standardised information about a company's intangibles, so that more informed assessments of business and financial prospects can be made. It also seeks to enable enterprises to better manage and generate value from their intangibles. It hopes to achieve this by setting out key disclosure principles that will lay the foundation for the harmonisation of intangibles disclosure by enterprises within similar sectors. After comparable information can be gathered, new methods can be tested, which may then lead to new ways of valuing intangibles. If intangibles can be valued separately as a distinct asset class (such as tangible assets), then various commercialisation options become feasible and enterprises are provided with more ways to generate value from their IA.
Closing points
The Framework is one of the first steps in developing an IA valuation and reporting ecosystem in Singapore, and ensuring that Singapore is a global IA and IP hub.
The Framework aims to provide stakeholders with standardised information about a company's intangibles. It identifies and highlights the key principles with respect to the disclosure of intangibles, and lays the foundation for the harmonisation of intangibles disclosure by enterprises. With businesses being able to better communicate the value of their intangibles, it is believed that this will lead to enhanced information transparency and will facilitate the commercialisation of intangibles.
The ACRA/IPOS public consultation on the Framework will be open until 28 February 2023.
Originally published December 19, 2022
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
