Apple and AT&T jostle in top rankings as call made for new valuation accounting
A new report has revealed that while Apple ranks as the leading company in terms of intangible value – including brands and trademarks – it drops out of the top 100 entirely when disclosed intangible value alone is assessed, with AT&T taking the number one spot. This disparity has led to calls for a reporting revolution, in which companies would be required to disclose their opinion of the fair value of key intangible assets.
Brand Finance’s Global Intangible Finance Tracker analyses intangible value at over 57,000 companies. In terms of key findings, it states that intangible value continues to rise globally – hitting $47.6 trillion in 2016 (up from $19.8 trillion in 2001). However, as current financial regulations mean that intangible assets need be disclosed during M&A activity only, the report states that $35 trillion worth of intangible value was left off balance sheets in 2016. The top 10 companies by intangible value were identified as:
1. Apple – $455 billion
2. Microsoft – $442 billion
3. Amazon.com – $410 billion
4. Alphabet – $378 billion
5. AT&T – $347 billion
6. Facebook – $344 billion
7. Anheuser-Busch InBev – $333 billion
8. Verizon Communications – $300 billion
9. Johnson & Johnson – $294 billion
10. General Electric Co – $272 billion
The report notes that the majority of these companies’ intangible value is related to technological patents, customer relationships and brands, and hence are not reported in financial statements (unless an acquisition takes place). When considering disclosed intangible value alone, Apple, Amazon, Alphabet (owner of Google) and Facebook fall out of the top 100. The top 10 companies by disclosed intangible value are:
1. AT&T – $222 billion
2. Anheuser-Busch Inbev – $181 billion
3. Verizon Communications – $123 billion
4. Berkshire Hathaway – $114 billion
5. Comcast Corp – $113 billion
6. Charter Communications – $111 billion
7. Allergan – $109 billion
8. Pfizer – $107 billion
9. Kraft Heinz – $103 billion
10. Softbank Group – $97 billion
Much of the study, then, focuses on the contrast between disclosed and undisclosed intangibles, with the charge that accounting standard IFRS 3 has failed to “adequately report the current real value of both internally generated and acquired intangibles”, leading to confusion due to some intangible assets appearing in balance sheets while most do not.
While Apple ranks as the world’s leader in terms of intangible value, it tumbles out of the top 100 when only disclosed intangible value is considered
David Haigh, CEO of Brand Finance, notes that this results in many valuable intangible assets never appearing on balance sheets (by way of example, he points out that while Smirnoff appears in Diageo’s balance sheet, Baileys does not), leading to a “lopsided” view of a company’s value. David Tweedie, chairman of the International Valuation Standards Council, concurs, arguing: “If purchased brands can be put on the balance sheet, there is no logic in banning internally generated brands being shown as assets.”
Reflecting on the difference between the lists, Haigh is calling for a new form of financial reporting, whereby boards would be required to disclose their opinion of the fair value of the underlying values of all key intangible assets under their control. He adds: “We believe that this exercise should be conducted annually and include explanatory notes as to the nature of each intangible asset, the key assumptions made in arriving at the values disclosed and a commentary about the health and management of each material intangible assets. They could then be held properly accountable.”