Article2014

The value relevance and reliability of intangible assets

36 citations0/0 files storedAsian Review of Accounting

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Auditing, Earnings Management, Governance Accounting Theory and Financial Reporting Intellectual Capital and Performance Analysis

Abstract

Purpose – The purpose of this paper is to examine the value relevance of intangible assets, including goodwill and other types of intangibles in the pre- and post-adoption periods of International Financial Reporting Standards (IFRS). Most importantly, this paper investigates whether the value relevance of reported intangible assets is associated with their value reliability. Furthermore, this paper reports whether the adoption of IFRS improves the value relevance of intangible assets and alters the relationship between value relevance and reliability. Design/methodology/approach – Both price and return models based on Ohlosn theory (1995) are employed to test the value relevance and value reliability of intangibles. Australian-listed firms with capitalised intangibles from 2001 to 2009 are selected in this study. The sample includes 6,650 firm-year observations. Findings – The main result shows that capitalised intangible assets are value relevant in Australia, in both the pre- and post-adoption of IFRS periods. Value relevance is higher in firms with more reliable information on intangible assets. This study finds that the value relevance of intangibles has declined in the post-adoption period of IFRS. However, the positive relationship between the value relevance and the reliability of intangibles has remained unchanged in the post-adoption period. Originality/value – The paper contributes a new measurement of value reliability of accounting information about intangibles. This paper is one of few studies on the relationship between value relevance and reliability of intangible assets. The results show that value relevance is positively associated with value reliability. This suggests that, when accounting standard setters assess whether the existing IFRS of intangibles should be improved in the future, they need to think not only in terms of whether the standard can provide more relevant information of intangibles to investors but also whether the standard can make the information of intangibles more reliable.

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References

1995Earnings, Book Values, and Dividends in Equity Valuation*2008International Accounting Standards and Accounting Quality 1995Valuation and Clean Surplus Accounting for Operating and Financial Activities*2008Mandatory IFRS Reporting around the World: Early Evidence on the Economic Consequences 1996The capitalization, amortization, and value-relevance of R&D 1999The Boundaries of Financial Reporting and How to Extend Them 1999Have Financial Statements Lost Their Relevance?2009Market Reaction to the Adoption of IFRS in Europe

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2021The effect of female presence on corporate boards of directors on the value relevance of accounting amounts: empirical evidence from the European Union 2021Framing accounting for goodwill: Intractable controversies between users and standard setters 2018The Value Relevance of IFRS Adoption in Indonesia

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