The Operating Returns to Acquired Intangible Assets

Accounting rule makers have long debated whether companies should recognize intangible assets on their balance sheets. At the heart of this debate is whether recognized values can predict future income and cash flows, or whether the high degree of measurement uncertainty embedded in intangible asset values precludes such predictive ability. While many agree intangibles like patents, trademarks, and goodwill contribute significantly to value creation and profitability, separately identifying and reliably measuring intangibles is costly. In fact, due to measurement-related concerns, accounting rules generally do not allow companies to recognize internally generated intangibles on their balance sheets. Intangibles acquired externally in … Read more