Accounting Essays - Brands Company Corporate

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Brands Company Corporate

Brand Accounting: Measuring and valuing brands


The main intention of this paper is to examine the how brands as intangible assets can be reflected in a company’s financial statement. Over the last 20 years brands have become progressively important elements of corporate goals, wealth and success. Corporate firms are increasingly competing and striving hard to build strong brand image(s) which reflects an escalation into intangible assets, resulting into the relevance of brand valuing.

With such a trend, more often than not will be the listing of brand names in the balance sheet of certain companies which impact valuation procedures and business decisions. The treatment procedures in brand accounting have been an issue that remains hotly debated in the accounting arena. There is exists disharmony among different accounting bodies worldwide and accounting systems adopted by various countries.

There are various approaches to valuing brands, namely: cost-based method, market-based method, and income-based method and formulatory method. This paper notes how organizations can utilize that valuation in brand accounting is more than just the method but rather management implications such as accounting strategy. Other considerations of brand valuation in terms of relevance to needs of organizations and businesses are briefly mentioned.


The onset of the recognition of brand accounting seem to have come along with the booming brand culture trend of the 1980s which was experienced with business deals that saw organizations bidding more for the name (brand image) than the tangible assets of a company. In 1987 Grand Metropolitan acquired Pillsbury for $1.125 billion with approximately 88 percent of it estimated to be exclusively for the Pillsbury brand.

Others include Microsoft buying Google, BMW Rolls-Royce, VW buying Bentley, Nestle acquisition of Rowntree and Danone buying Nabisco’s European business. Srikanthan, Ward and Neal (1988) were quick to note of the increased awareness for the brand accountability and other marketing assets which in many cases were formerly unrecognized and rather seen as ambiguous. Brand accounting in its sunset years of recognition was viewed with doubts of whether it was a myth or reality or if it was in fact proceeds of commercial convenience committed by a few major companies.

Seetharaman et al. (2001) highlighted that the amount being paid for the acquisition, especially for the strong branded names, was progressively higher than the value of company’s net tangible assets. Purcell (2001) recognizes the use of brand extension whereby other products can be added to the brand range to exploit on the existing goodwill. Recent development is of the year 2008 lucrative Microsoft (MSFT) $31 a share pre-emptive bid worth $44.6 billion for Yahoo (YHOO).

The stalemate in the takeover deal was because the shareholders felt that the company had been “substantially undervalued” and demanded higher stakes. Yahoo primarily been an intangible asset based company, has over the years established itself through its brand image and the other related brand synergies. Cook (2008) observes that the apparent advantages of Yahoo brands such as the ‘Buzzword’ as a “tangible reason” Microsoft needed to acquire Yahoo.

Research Problem

In today’s commercial era, businesses are increasingly finding the need to focus on brand capitalization. Hence, it seems inescapable to assume the importance of valuing brands as intangible assets in all aspects of business. With the trend towards brand capitalization, accountancy holds the key for appropriate brand recognition and valuation. Many investigations have been made to achieve the best out of brand accounting for accounting objectives. The major problems in brand accounting seem to be as follows:

  • There exists disharmony in brands recognition of in terms of the reliability and relevance approach.
  • It is still difficult for managers to separately identify brands are still not recognized as separable items from other intangible
  • There exists is no clear decision making framework for assisting businesses account and value for acquired or internally generated brands as intangible assets.

Objectives of the Research

The objectives of the research are:

  • To define a set of major organizational attributes in terms of how they impact choosing the best accounting system development method.
  • To identifying parameters influencing the brand’s value
  • find a standard segmentation of organizations in order to define each organization’s accounting related attributes.
  • To build up a decision making framework to produce relevant and reliable information for brand valuation decisions

Survey of Literature

Digital technology has created another industrial revolution in human history and has greatly influenced all characteristics of business and consequently accounting as the language of business. Many researches have been carried out and many articles have been provided regarding to these impacts. Five issues would be extracted from these articles; (1) Recognition of brands as assets, (2) principles of recognition of brands, (3) brand valuation after initial recognition, (4) brand accounting in various countries, and (5) towards a consistent framework for classification, recognition and reporting of intangibles

Recognition of brands as assets

Brands are recognized and categorized as intangible assets. The reporting of brands in the balance sheet principally depends on their compliance with the definition of intangible assets. According to the International Accounting Standards (IAS 38) of IASC (International Accounting Standards Committee) intangible asset can be defined as an “identifiable non-monetary asset without physical substance held” for i) use in the production or supply of goods/services; ii) for rental to others; iii) or for administrative purposes.

From a broader perspective, a brand can be termed as a collection of images and ideas such as a name, symbol, sign, logo, slogan, or design. Brand recognition and other reactions are created by the amassed experiences with a specific product or service, either through directly or indirect relation. The simplest distinction between a brand and a product comes from the fact that the former is intangible and the latter tangible.

Brand gives products and services meaning, and adds dimension that differentiates it in a certain way from other products and services intended to satisfy the same need. Seetharaman et al. (2001) points that unlike products which are essentially generic, brands are unique since they can be associated with character, consumer experience and other characteristics that posses certain associations.

Since brands add value to a company it has over the years become a crucial element of corporate goals, wealth and success. It also implies need for valuation significance in today’s business world where marketing synergies are directed towards “brand capitalization”.

Even though brand has been is been recognized as a form of intangible asset, there exists reluctance on acceptance in accountancy on the approach mode of reporting brand assets in the balance sheet. This is particularly true between countries that embrace the Anglo-American accounting philosophy versus those that have adopted the Continental European accounting conception.

It is often considered that one of the main reasons why countries with other accounting approaches are reluctant to adopt the International Accounting Standards (IAS) is because the process and resulting IASC standard-setting are vastly influenced by the Anglo-American accounting approach, which theoretically emphasizes on “relevance” Stolowy and Klockhaus (2000). Countries that belong to the “Continental European conception”, supposedly, stress on reliability, objectivity principle and verifiability.

Apparently, accounting academics, regulators and other major stakeholders are skeptic between the relevance of external financial reports versus maintaining the reliability and verifiability of the information provided. Core to this argument is the belief that, without a transaction, there is no accepted market value Tollington (1998). Wyatt and Abernethy (2003) uphold that intangible assets are typically identified by reference to the transactions between the company and an external party.

In defining brand as an asset Seetharaman et al. (2001) seem to advocate on the basis of reliability, in that, the value of a brand cannot be determined exactly unless it becomes the subject of a particular business transaction such as sale or acquisition. From this observation, brand as an asset has over the years been mostly highlighted from the ‘stemming out’ approach of acquisition, goodwill or in merger corporate scenarios.

An interesting point to note is that whereas intangible assets are the key drivers of corporate value, financial statements alone remain insufficient in assessing the performance and value of companies, hence, as Gregory (2007) suggests, the only way to monetize intangibles is to sell the company.

More surprisingly, the IASC emphasizes on the reliability aspect over the relevance aspect in connection with brands, Stolowy and Klockhaus (2000). This statement does sound overdue as the injury has already been afflicted since the atmosphere of the absence of an agreeable international brand accounting standard looms.

The situation makes it even challenging and confusing for managers. Tollington (1999) points that there is no clear evidence emerging as to whether the decision to account for brands should be made by managers or companies because they fully embrace the brand asset concept, or whether it has to be based entirely upon pragmatic contemplations such as avoiding excessive reserve depletion.

This seems to call in for a consistent and harmonized framework for brand accounting, in addition, the definition and recognition of an asset in accounting terms needs broadening to accept in, new limitations for acceptable brand definition.

Concept of branding and brand value

Customer experiences, core values and coherence that are associated with a particular brand have formed the basis of association with customer retentions and positive perception Martin and Hartley (2006). This brings in the main important concept of brands with consumers called brand equity, and as Wood L. (2000) notes, brand equity came about as an attempt to define the relationship between customers and brands.