How differently do actors in the economy perceive intangible capital, given its flexibility ?

The shift from an industrial-based economy towards a knowledge-based economy has led to a change in the main source of value creation from tangible capital to intangible capital. Authors and institutions have tried to generalize the definition and the estimation of intangible capital but failed to provide an official and sound content, making it therefore a flexible concept. Indeed, on a macro-economic level, the World Bank has provided estimations of the economic value of the world’s intangible capital, which is a variable amount. On an enterprise level, flexibility occurs both in financial and non-financial reporting. In financial reporting, according to the IFRS accounting principles, many rules are based on professional judgment, assumptions and market data. Non-financial reporting offers a degree of flexibility in representing the intangibles that are part of the process of value creation. This hypothesis of flexibility leads to different perceptions of intangible capital by actors in the economy. Firstly, conflicts can occur between an accountant, a shareholder and an external auditor based on financial accounting norms regarding intangibles such as the identification of a cash-generating unit, the timing and amount of impairment, the purchase price allocation and the hypothesis for discounting cash flow. Secondly, a corporate finance consultant will perceive the amount of intangible capital by calculations and assumptions that are made to indicate an enterprise value and by meeting the expectations of buyer and seller to a final transaction price which consequently determines the actual value of intangibles. Next, a private equity house will, in contrast to financial reporting, take into consideration internally generated goodwill, such as personnel, know-how and potential growth of the project in their evaluation of companies as investment opportunities. Finally, the perception of the public can be analyzed by measuring the variations of share price following a change in the amount of intangible assets. Based on literature, the perception of the firm’s intangible capital by the public will not be affected by goodwill impairments. The conclusion of this dissertation is that not only is there a difference in perceptions, confirming the flexibility in the concept of intangible capital, but companies can, to possible extent, benefit from the flexibility in the accounting norms regarding intangibles. Moreover, some actors will perceive intangible capital differently than what is presented in financial statements.