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Intangible assets, intellectual capital and Balanced Scorecard

Conference Paper · September 2017

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Milos Petkovic
Singidunum University
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 SUBMISSION OF FINAL PAPER
European Institute for Advanced Studies in Management
(EIASM)

13TH INTERDISCIPLINARY WORKSHOP ON INTANGIBLES AND

INTELLECTUAL CAPITAL
ANCONA, ITALY, SEPTEMBER 21-22, 2017

Candidate name
Milos Petkovic
milos.petkovic@unice.fr
Laboratory for Research in Management (GRM)
IAE Nice
University Sophia Antipolis Nice, France

Director of Thesis
professor Eric Cauvin

Co-Director of Thesis
professor Elisabeth Walliser

Paper Submitted
25.08.2017.
Nowadays in the period of global and
strongly competitive market, information
technology and “New economics” era,
intangible assets are recognized as the very
important part for improving performance.
The resource based view has been changed to
knowledge view in the last twenty years.
Compared to the past, when a focus was on
the tangible assets, the production process
was massive, with huge production lines,
spaces and human labor. Today, time has
changed completely. By the study of OECD
from 1996, the current global economy was
described as “an economy based on
knowledge”. Knowledge economy is
characterized by the well-educated and
trained population that will trigger the
economic growth, dynamic information and
communication infrastructure. On the other
side, companies with a good base of
knowledge can achieve in advanced planned
goals, gain competitive advantage and higher
profits (Arthur, 1996).
Intellectual capital is invisible, intangible and
not recognized by the current accounting
standards. Accounting rules are adapted more
to the industry era, and not to the information
and knowledge era, where intangible assets
are differencing companies between each
other. The accounting treatment of intangible
assets is a matter of considerable interest to
managers, investors and accounting-standard
setter (Lev, Feng, 2003). Significance of my
study will be proposing a project for
identifying, measuring and recognizing
intellectual capital in the financial statements,
respecting international accounting
standards. My research question is: “How
does the intellectual capital investment
influence on the total book value of a
company”. My hypothesis will prove a
positive relationship between intellectual
capital investment and total book value. My
research study is based on the knowledge-
based theory because knowledge is a core
company’s resource. The company’s
knowledge cannot be controlled (Von Krogh,
1998), but it can be coordinated and used for
achieving in advanced planned goals
(Spender, 1996). Until now, there are many
studies about correlation between intellectual
capital investment and total market value or
profit. With my study that is not discovered
yet, I will contribute to the management
sciences. My PhD project is based on five
main steps:
•   First step is defining intellectual
capital investment, identifying R&D
expenses and calculating the whole
value of investment (Liebovitz,
2000);
•   Second step is defining intellectual
capital and calculating the intellectual
capital value using the Skandia
Intellectual Capital Value Scheme
(Roos, et.al, 1997);
•   Third step is calculating the
percentage of changes in the
intellectual capital and recognizing
the value from the investment;
•   Fourth is collecting the data and
preparing the sample;
•   Final step is reserved for testing my
hypothesis.
There are many different definitions about
the intellectual capital investments and the
definitions differ from the purpose of
research. Intellectual capital investment is
focused on intellectual capital creation and
creation of future benefits (Lentjushenkova,
Lapina, 2014). After defining intellectual
capital investment, it is necessary to classify
investments on: investment in IT,
relationship investment, educational
investment, R&D investment and investment
in new products and training (Edvinsson &
Malone, 1997). The R&D investment will be
taken in my project, where I will further
identify R&D expenses in the Profit and Loss
account and follow their value creation. The
R&D expenditures are treated by the market
as investments in intellectual capital
(Bandeira, Afonso, 2010). There are 14
research expenditures with precise
accounting treatment (Warfield, Weygandt,
Kieso, 2007).
 Intellectual capital investments additional
are investments with a purpose of gaining and
improving a company’s value (Molodchik,
2012). From the R&D expenses that will be
seen as capital expenses and not as
operational expenses, I will follow creation
of research asset by the formula given by
Aswath D. in 2009. It is highly important to
see R&D expenses as capital expenses, as
expenses that will last more than one year and
that future economic benefits will happen in
the future years. The new intangible asset can
be recognized in the fin. statements only if
can all expenses be followed and there will be
future economic benefits (IAE 38, page 14).
Also, by the IAS 38, R&D expenses should
be capitalized and seen as investments. US
GAAP standards see these expenses as costs
only. Today, accountants look at these
expenses as operational, because they see
them only in the current year, without any
future benefit expectations.
  types of capital are similar and linked to the
  four main components of the Balanced
Intellectual capital or intellectual asset is
transformation of knowledge to valuable
asset (Steward, 1994). Intellectual capital
consists of next three elements: human
capital, structural capital and relational
capital. Human capital includes experience,
know-how, capabilities and skills of
employees. Structural capital includes
systems, networks, culture and other
organizational capabilities within the
company. Customer capital presents
relationships with customers (Bontis, 1998),
(Sveiby, 1997), (Saint Onge, 1996).
Intellectual capital is calculated by the
Skandia Intellectual Value Scheme formula
as a difference between total market and total
book value of a company (Roos, Roos,
Dragonetti and Edvinsson, 1997). It is
necessary to follow parallel creation of
research asset and intellectual capital because
a company cannot expect to develop new
R&D activities, if previously was not created
intellectual capital
(Lentjushenkova, Lapina, 2014). If we would
like to define, conceptualize and sum up the
knowledge value creation process we can
define it as knowledge management, because
knowledge management can be defined as a
systematic coordination between people,
technology, processes and structure that can
result later on with added value or
innovations (Nonaka, 1995).
In my project, I will use the Balanced
Scorecard developed as a non-financial
performance measurement system. The
Balanced Scorecard is composed of four
main components and those are: Financial,
Customer, Internal Business Processes and
Learning and Growth. (Kaplan, Norton,
1992). The main reason why I chose the
intellectual capital definition given by
professor Nick Bontis is because the three
Scorecard. If a company creates a strategy
with a main goal to improve its total book
value or create new asset, then it starts with
first and operational level, where the
employees will collaborate, research and
develop. Then, it is necessary to have a
collaboration between departments, within
organizational structure. After internal
collaboration, it is necessary to develop an
asset that meets customers’ demands that will
attract and gain profit at the end. The
Balanced Scorecard provides a perfect
balance between financial and non-financial
components, and it is very successful
management tool in nowadays competitive
and knowledge-based market.
 REFERENCES:
1.   Arthur, W. B. (1996) Increasing returns and the new world of business. Harvard Business
Review, July-August, 100-109;
2.   Baruch, L. Fend, G. (2003) Intangible Assets – Measurement, Drivers, Usefulness,
working paper, New York University, Stern Business School of Business, electronic copy
available at: http://www.pages.stern.nyu.edu/~blev/intangible-assets.doc., accessed on
May, 3rd, 2017;
3.   Bandeira, A.M. Afonso, O. (2010) Value of intangibles arising from R&D activities The
Open Business Journal 3, 30-43.
4.   Bontis, N. (1998) Intellectual capital: an exploratory study that develops measures and
models, National Centre for Management Research and Development, Richard Ivey
School of Business, University of Western Ontario, London, Ontario, Canada;
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8.   International Accounting Standard 38 – Intangible Assets, IASB, 2016.
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133-153;

 

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