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CFOs assign value to corporate data

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7th Jan 2013
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A study into finance leaders’ attitudes to their company’s data has revealed that one in five are actually assigning a line on the balance sheet for data, assigning a value to it and managing it as an asset robustly.

The SAS-commissioned research, ‘Data and the CFO: a love/hate relationship’, found that a growing number of finance leaders were actively engaged with managing data as an asset.

Far more of the large companies surveyed were likely to have dedicated teams in place to manage data, systems to monitor the health of the data asset and were more likely to discuss the value and role of data at board level.

Senior finance executives said they were actively involved in data management with 58% receiving monthly KPIs on data quality. This number rises to 80% for those companies that include data on their balance sheets. 

An overwhelming majority felt that data management was more important than it was five years ago with the main reason for this growing importance deemed to be its importance to devising strategy (70%) and its value when retaining customers (67%), with 60% believing data’s role in compliance was responsible for its elevated status.

Intangible assets & recognition criteria

AccountingWEB contributor Steve Collings found the research very interesting and said a database that has been recognised on a balance sheet would be intangible and therefore FRS 10 ‘Goodwill and intangible assets’ or IAS 38 ‘Intangible assets’ would be applicable.

On whether a database is classed as a ‘unique intangible asset’, Collings said there’s an argument to say in many situations it could be, and therefore paragraph 12 in FRS 10 would be relevant. It says:

“It is not possible to determine a market value for unique intangible assets such as brands and publishing titles.  Replacement cost may be equally difficult to determine directly.  However, certain entities that are regularly involved in the purchase and sale of unique intangible assets have developed techniques for estimating their values indirectly and these may be used for initial recognition of such assets at the time of purchase.  Techniques used can be based, for example, on ‘indicators of value’ – such as multiples of turnover – or on estimating the present value of the royalties that would be payable to license the asset from a third party”

Collings added that the key to recognising an intangible asset, such as a database, would be to ask the following question: “Is it an internally-developed intangible asset?”

If it is, then you would need to ask: “Has it got a readily ascertainable value?”

According to FRS 10 paragraph 2, a “readily ascertainable market value” is obtained by reference to a market where:

  • the asset belongs to a homogeneous population of assets that are equivalent in all material respects
  • an active market, evidenced by frequent transactions, exists for that population of assets

Then you need to ask: “Is there a homogenous population for databases?”  If no, you’re not going to be able to get a readily ascertainable market value.

Collings said:  “I’m a bit sceptical about the whole capitalisation thing here where databases are concerned.  I mean if you look at IAS 38 it doesn’t like anything internally generated and I would imagine databases generally are.”

In addition, paragraph 63 to IAS 38 says:

“Brands, mastheads, publishing titles, customer lists, and items similar in substance that are internally generated should not be recognised as assets”

IAS 38 does recognise certain ‘possible’ intangibles (e.g. customer lists, patents, copyrights etc.) but the recognition criteria is fairly rigid. 

An intangible can only be recognised on a balance sheet if:

  • it is probable that future economic benefits that are attributable to the asset will flow to the entity
  • the cost of the asset can be measured reliably

Collings said that generally the second bullet above was where companies tended to fall down because you’re back to an active market.  “It’s the problem of a reliable cost where intangibles are concerned – if there’s no reliable cost there’s no intangible asset,” he said.

Recognising a database on a balance sheet isn’t impossible, but if you look into the technicalities of FRS 10 and IAS 38, applying the recognition criteria would prove that it isn’t that simple – particularly where intangibles are concerned.”

Data management

The findings also suggested that CFOs were concerned about the quality of data submitted during financial reporting, with 78% fearful of inaccuracies being submitted to the City.

Hugo D’Ulisse, director Information Management, SAS UK said: “Those companies that take this approach [assigning a financial value to their data] have more confidence their data is accurate, they are far more likely to have dedicated teams to manage data and they have sophisticated measurement techniques to track the quality of data overtime. In short, they govern data in a rigours manner like other business assets.”

Confidence in quality

The research found that confidence in the quality of company data was low, with a large amount unfit for purpose.

Overall 82% of respondents were not completely confident in the quality of their company’s data with 78% suspecting at least some is inaccurate, out of date or irrelevant.

When probed further, finance chiefs estimated that, on average, 23% of all electronic data held by their business was inaccurate and not fit for purpose.

Potential to support growth

Data management was also viewed among the large companies involved as having potential to support growth.

Despite the challenges, all senior finance leaders believed that good data management has the potential to drive growth for their business, with 44% thinking that potential to be significant, 42% citing it as moderate and just 14% view it as slight.

The largest companies, with 10,000 or more employees, were more optimistic and 59% saw the potential as significant. For those that quantify data on the balance sheet the number rises further still to 70%. 

The research study was conducted during June 2012 by Dynamic Markets who conducted interviews with 100 CFOs and FDs from some of the UKs largest companies across all sectors. 58% of respondent companies are listed on at least one financial market. SAS, the company which commissioned the research, is a business analytics software and services firm.

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By Bill Sinnett
21st Jan 2013 23:39

Big Data Needs to Prove Itself

We at the Financial Executives Research Foundation (FERF) appreciate how companies around the world are dealing with Big Data. In most companies, Big Data was of high importance, and investment in it was broadly expected to increase over time. However, in the FERF/Gartner study Financial Executives International CFO Technology, we found that the key IT issue for CFOs was the business value of the investment, and not its technical elements. Importantly most CFOs apparently need convincing about the intrinsic value of IT. A surprising 92% of CFOs believe the IT does not provide transformational/differentiation value.

 

Bill Sinnett

Senior Director, Research

Financial Executives Research Foundation (FERF)

www.ferf.org

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By martinspratt
10th Apr 2018 05:15

Some quick lessons from a Data (RE)valuation specialty business (DISCLAIMER: we are data engineers from Silicon Valley, not accountants, but had to learn the hard way. Don't take our regulatory advice, seek your own in your jurisdiction(s), but we can measure the value with precision using our bots VERY quickly)..

Read on...

1. DON'T ASK AN ACCOUNTANT - global standards on INTANGIBLE accounting relative to data are NOT consistent. (if you want to land Data as an Intangible Asset)... IAS38 not allowed, AASB138 allowed, etc etc... Accountants can't agree. We have had to learn more than them on this. The Accounting industry is in disaray when it comes to DATA. Go figure.

2.ASSET IMPAIRMENT - it occurred to us and our clients that IAS36 requires that the CARRY VALUE of intangible data assets be calculated (consistently) every year that the asset exists. ClearDQ was build in 2012, and has done exactly that for listed and unlisted companies year-on-year, very successfully, and getting smarter with each iteration. Source code, Method and Algorithms to be Open Sourced in 2018, stay tuned for the global defacto standard on INTANGIBLE DATA ASSET IMPAIRMENT (all countries, all industries) in the absence of any other cogent attempt at a standard.

3. INTERNALLY GENERATED ASSETS - Also, we have learned that internally generated data assets can be problematic, but a sale/purchase/leaseback/ licensing event creates the right to recognize data assets on the balance sheet, regardless of the "internally generated" status, due to the "monetizing recognition event"... if you buy INTANGIBLE DATA ASSETS yes you can recognize them, but if you build them internally you need to be creating to "recognize" them... Get creative.

4. We have learnt that boards don't like to add NEW Intangible Data Assets the balance sheet for the FIRST time, without a lot of due diligence and risk review.

5. INTANGIBLE SUB-CLASSES and CLOAKING DATA ASSETS - Finally for decades Silicon Valley has been subordinating acquired data assets inside IAS38 and using very clever INTANGIBLE language like "Customer Relationship" as line items in the INTANGIBLES annotation. Take a read of any notable data intensive SEC filing (like Google/Alphabet, etc)... you can find the data assets if you know what you are looking for. The 4 x Intangible asset sub-classes are Emotional, Time, Relationship and Knowledge assets. Data typically sits in Relationship or Knowledge sub-classes. Data can support all 4 sub-classes (value creation) as well as tangible assets too. Clever accounting.

My brain hurts. Back to coding.

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By martinspratt
10th Apr 2018 05:31

BTW great article.

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