11.5 Analysis

Analysis of financial statements will be affected by how intangible assets are accounted for. For example, companies that follow ASPE can either capitalize or expense their internally developed intangibles, depending upon company policy. More flexibility means less comparability when evaluating performance with other companies within the industry sector. Policy changes regarding intangible assets are treated prospectively within a company. This can also impact comparability within the company when analyzing performance trends over time. For IFRS companies, once the six conditions and criteria are met for internally developed intangibles, they are capitalized as assets. This results in greater comparability when analyzing performance.

Another issue involves company valuations. The SFP/BS does not always capture the company’s true value. This in turn will affect performance evaluation within the company and within its industry sector. Recall the discussion at the beginning of this chapter regarding BioWare, whereby the company’s total value can increase due to the development of creative software development teams with extraordinary talents or perhaps a superior management team. Since these cannot be measured reliably, they are not reported in any of the financial statements. There is no doubt that these attributes are relevant and will positively affect the company’s total value, but without quantification within the financial statements, they will likely have little impact on decision-making such as what a creditor would be willing to loan the company to expand their markets, or what additional monies a purchaser might be willing to pay to purchase the company.