Accounting for Intangibles – The Income Statement is Not the Answer

I guess it’s time to talk about Accounting for Intangible Assets: There is Also an Income Statement by Stephen Penman. When this new paper first came out from the Center for Excellence in Accounting & Security Analysis at Columbia University, I decided to ignore it as an apology for current accounting standards–which are completely inadequate for the knowledge era.

But now the paper is getting more attention so I feel the need to answer it.

We are not talking about some theoretical accounting issue.  70% of the value of the average M&A deal is intangible. 60% of the average corporate investment is intangible. 50-80% of the average public company is intangible. That means that intangibles are ignored by accountants (the only real exception is in the case of a merger, when the lack of understanding ends up as 50% of the purchase price going to goodwill). None of this is helpful to the cause (and stated mission of Columbia’s center) of “excellence in accounting and security analysis.” Read more