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Comprehensive Corporate Reporting – Tangible or Intangible?

Financial Reporting Brief: July 2022

A comprehensive corporate reporting framework is the objective of all engaged in the reporting process – preparers through to regulators – in order to meet the demands from investors and other stakeholders. They call loudly for greater transparency, comprehensiveness and reliability of reporting to support them in their decisions on allocation of capital and other economic challenges.

To understand what is being demanded of such a framework, it is interesting to take a step back to September 2020 when five global organisations who were engaged in leading the global development of sustainability and integrated reporting, announced a shared vision of what they considered was needed for progress towards comprehensive corporate reporting – and their intent to work together to achieve it.

They declared their intent to provide:

  • joint market guidance on how their respective frameworks and standards could be applied in a complementary and additive way;
  • a joint vision of how these elements could complement financial generally accepted accounting principles (financial GAAP) and serve as a natural starting point for progress towards a more coherent, comprehensive corporate reporting system; and
  • a joint commitment to drive toward this system, through an ongoing programme of deeper collaboration between them, and a stated willingness to engage closely with other interested stakeholders.

The comprehensive corporate reporting framework the paper envisioned would then see three nested sets of reporting:

  • reporting on matters that reflect the organisation’s significant impacts on the economy, environment and people;
  • reporting on the sub-set of sustainability topics that are material for enterprise value creation; and
  • reporting that is already reflected in the financial statements.

Three of these organisations now form part of the overall global sustainability reporting vehicle, with the International Sustainability Standards Board (ISSB) inaugurated in November 2021 at COP 26 under the governance of the IFRS Foundation. Their statement of intent is being acted upon as an integral part of the bedrock and driving force of sustainability reporting and integration with financial reporting. It has been added to by work already done by the ISSB and there is now a single focused approach to the development of the ISSB global baseline of standards.

Drafts of two standards have already been published by the ISSB while European draft standards have also been published. Both at a global level and at a European level, significant progress is being made with 2022 and 2023 anticipated to be landmark years in bringing reporting to a new platform for all entities.

What of financial reporting standards? A large body of standards is extant, with supporting interpretations and guidance, and there is a continuing flow of work undertaken in maintaining and improving the standards. With the very challenging environment that prevails, it is testament to the robustness of the standards that they have continued to serve their intended purpose. It is recognised by the IASB, and other standard-setters, that improvements can be made to improve responsiveness to emerging challenges and additional considerations that have become apparent because of changing conditions.

With the challenges of the prevailing environment and the changing needs and demands it brings, it is difficult for the standard-setters to commit resources to areas which have been identified as research projects. Perhaps the area of intangibles is the research project crying out loudest for attention for quite some time because of the magnitude of its relevance to many entities. It is of some encouragement that the IASB has, in response to its third agenda consultation, decided to add a comprehensive review of IAS 38 Intangible Assets to its work programme.



IAS 38 Intangibles is approximately twenty years old and has seen relatively little change in that time. It is falling behind the many significant strides made in economic developments during that time. Value creation strategies that existed when IAS 38 was published have evolved substantially over the last two decades with many current business models relying more heavily on intangible assets than tangible assets. As a consequence, many see it as a major contributor to a decline in the value relevance of financial statements in many industries and for many companies.

The recognition criteria of IAS 38 are that it requires an entity to recognise an intangible asset, whether purchased or self-created (at cost) if, and only if:

  • it is probable that the future economic benefits that are attributable to the asset will flow to the entity; and
  • the cost of the asset can be measured reliably.

IAS 38 requires intangible assets to be separately identifiable, based on:

  • is it separable (capable of being separated and sold, transferred, licensed, rented, or exchanged, either individually or together with a related contract); or
  • does it arise from contractual or other legal rights, regardless of whether those rights are transferable or separable from the entity or from other rights and obligations.

These requirements have led to growing differences between acquired intangibles, which are measurable based on purchase price allocation, and internally generated intangibles which are in many cases far less capable of separate identification and measurement. Further, the identification of intangibles separately from goodwill in acquisitions leads to still more measurement issues.

The major consequence is an increasingly significant amount of intangibles are not recognised on company balance sheets, with growing disparity between balance sheet value and market value of many companies.

Goodwill itself is also back in the ‘melting pot’ as reaching consensus on an impairment model or an amortisation model for subsequent measurement is proving difficult, with concern over the impairment model currently used. Recently, the US Financial Accounting Standards Board decided to end its four-year project aimed at simplifying how companies calculate impairment, or amortisation if considered the preferred route. While this may not help the IASB with its considerations, the IASB has renewed its commitment to complete its work on goodwill and impairment in 2022/23. Given the scale of goodwill in many company balance sheets, decisions are needed soon.


Evidence of Growth

There is strong evidence of the increasing proportionate value of intangible assets. For example, a recent survey of US companies showed intangible assets grew from $6 trillion in 1996 to $74 trillion in 2021. Similar surveys have shown that companies in the top quartile for growth in gross value added have invested 2.6 times more in intangibles than companies in the lower quartiles. Similar growth is clearly evident in Europe and other regions also.

The pandemic saw intangible assets value grow faster than usual, by 23% versus pre-pandemic levels. COVID-19 and new ways of working have demonstrated the importance of people, innovation, reputation and brand for business, and strong brands have been a safe haven for capital.


IVSC Explore Issues

The International Valuation Standards Council (IVSC) works closely in co-operation with the IASB. It is currently publishing a series of articles under the overall title – Time to get Tangible about Intangibles - exploring fundamental questions with regard to the importance of intangible assets to the capital markets. These include:

  • What should be the goal for an enhanced intangible asset framework? Is the goal to better identify value creation activities for future cash flow estimates, the ability to more accurately measure return on investment akin to economic value-added principles, and/or the ability to better assess management’s stewardship of capital?
  • What are the intangibles that could be subject to enhanced intangible asset frameworks and what investments/costs result in their creation?
  • Should an enhanced intangible asset framework be based on 1) enhanced disclosures; 2) capitalisation; or 3) value creation concepts and measurement?

A second article has recently been published by the IVSC – Human Capital Introspective.

Human capital is the foundation from which all intangible assets are created, yet our understanding of Human Capital value creation and rigour around value measurement is less evolved than other business capitals. The statement that ‘our people are our most valuable asset’ is ubiquitous within corporate communications – but do we understand it and can we measure the role of human capital in enterprise value creation.

The IVSC, in its article:

  • examines how human capital generates value for organisations and the attributes of such value creation;
  • analyses how investors assess enterprise value creation attributable to human capital via KPIs and other measures; and
  • discusses the value measurement techniques used to estimate the value of human capital.

Evidence suggests that investors require more information on the impact Human Capital has on enterprise value. As the role of Human Capital in enterprise value creation evolves, the techniques to measure its value will need to be more fully determined.


EFRAG Considerations

The European Financial Reporting Advisory Group (EFRAG) has published a Discussion Paper ‘Better information on intangibles – which is the best way to go?’ in which it considers three approaches for better information on intangibles:

  • Recognition and measurement in the primary financial statements;
  • Information on specific intangibles in the notes to the financial statements or in the management report;
  • Information on future-oriented expenditure and risk/opportunity factors that may affect future performance in the notes to the financial statements or in the management report.

The scope of the EFRAG discussion goes beyond the existing definition of assets in financial reporting and also considers whether there are other sources of possible economic benefit that would not be controlled by an entity but raise questions about whether they should be recognised in the financial statements, and how best to achieve that.


Sustainability Reporting

The proposed EU Corporate Sustainability Reporting Directive (CSRD) heralded a new era in 2021, and is an essential element of achieving the European Green Deal which has been commented on in many of our previous Briefs. The CSRD aims to increase transparency of corporate performance in terms of sustainability, and to extend its reach significantly beyond those entities currently within the scope of the EU non-Financial Reporting Directive. The European Commission wants to enforce this by requiring organizations to disclose information related to intangibles (social, human, intellectual capital). There has been further progress recently with the European Parliament and the European Council reaching political agreement of the CSRD, which is a significant step towards its completion.

The development of the European Sustainability Reporting Standards (ESRS) will amplify how this is achieved and where the balance lies between financial reporting and sustainability reporting.



The ultimate objective of a comprehensive corporate reporting framework must be achieved in order to meet the demands of investors and all stakeholders for substantial improvement in the transparency, cohesiveness and reliability of corporate reporting.

While sustainability reporting is currently ‘grabbing the headlines’ with its recent and continuing developments, there are many areas of financial reporting which require attention by the standard-setters.

Accounting for intangibles is one of the more significant issues. ‘Time to get Tangible about Intangible Assets’ – clearly expresses the need.

Business practices will continue to evolve and intellectual resources will continue to develop to meet the demands of an ever-changing environment. The gap between market value and book value of businesses may be expected to continue to grow substantially.

Companies must for now work with what is currently available from various sources, including for example the sustainability accounting standards, to ensure that reliable and transparent messaging is provided to investors and other stakeholders. A clearer horizon appears in sight for comprehensive reporting.

Resources and Publications

Closing Out 2021

Welcome to our one-stop guide covering the issues relevant to the preparation of December 2021 annual reports.


Governance in focus — On the board agenda 2022

Our annual review of board topics will stimulate your thinking and help prepare you for the year ahead. Across the board, expectations of business are rising and it is this demanding environment which shapes the articles in this year’s publication.


Annual Report Insights 2021 - Surveying FTSE Reporting

Surveying FTSE reporting. Our yearly survey scours the annual reports of 100 listed UK companies and provides insight and inspiration ahead of the next reporting season.


IFRS Model Financial Statements 2021

The Model for 2021 illustrates the presentation and disclosure requirements of IFRS Standards and also contains ‘best practice’ examples.


IFRS in your pocket 2021

IFRS in your pocket is a comprehensive summary of the current IFRS Standards and Interpretations along with details of the projects on the standard-setting agenda of the International Accounting Standards Board.


Understanding the differences between U.S. GAAP and IFRS Standards

A comprehensive 380-page publication focusing on some of the most common and significant differences that may affect financial statements when converting from U.S. GAAP to IFRS Standards and vice versa. Updated to 2022.


IFRS Foundation Trustees' sustainability reporting initiative

Summary of continuing developments.


Climate & Sustainability

Today’s climate crisis urges us to reinvent our economy. Business needs to change to meet higher expectations of sustainability and Deloitte is well-equipped to guide organisations through this change. Together we can rewrite the playbook on authentic business responsibility.


Operations Transformation

Operations reimagined and reconfigured - how do we embrace a future of change without losing focus on our purpose? We help you think holistically about the transformation process, so you're reskilling your people, redeploying your assets, and refreshing your technology stack.


Brexit Resources

Deloitte resources on financial reporting implications of Brexit, including links to news and publications.


New IAS Plus resource page

Highlights some of the key accounting and disclosure issues to be considered by entities that may arise as a result of COVID-19 in preparing financial statements.


Enhanced IFRS e-learning website

Our IFRS e-learning platform allows external users to complete over 40 of Deloitte’s IFRS e-learnings free of charge with 6 million+ uses in recent years.

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