Financial reporting ill equipped to deal with intellectual capital

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Gina Dyer
Deputy Editor
Sift Media
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ICAS research suggests current reporting models aren’t properly reflecting the non-financial information that makes businesses ‘tick’.

A newly discovered link between the disclosure of intellectual capital in financial statements and the cheaper cost of capital in the UK has sparked concern over the effectiveness of financial reporting mechanisms.

A new ICAS report has discovered that companies with higher levels of intellectual capital disclosure in their annual reports have cost of equity capital estimates up to 3% less than companies with lower disclosure levels.

In the traditional financial reporting model, investments in intellectual capital assets are either immediately expensed or arbitrarily amortised and are therefore not fully reflected in the financial st...

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