Intellectual Capital Reporting: Can a Strategy Perspective Solve Accounting Problems?

Intellectual Capital Reporting: Can a Strategy Perspective Solve Accounting Problems?

Christian Nielsen (Aalborg University, Denmark), Robin Roslender (Heriot-Watt University, UK) and Per Nikolaj Bukh (Aalborg University, Denmark)
DOI: 10.4018/978-1-60566-270-1.ch011
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During the last decade, many calls for improving disclosure practices, in relation to intellectual capital and intangibles, have been uttered in the standard setting, academic, and business communities. There seem to be two types of solutions to this problem. One angle of attack is to seek to improve transparency through implementation of global accounting standards, and moving from historic value to fair-value practices. Another way of dealing with the problem is to step outside the accounting paradigm to see if transparency and relevance problems can be solved by way of supplementary disclosures. For some, this is a logical step. However, for many, this represents shaky ground. It is ironic that while supplementary information has been shown to reduce investors’ uncertainty, it is not being acknowledged as a key element in solving the existing problems by standard setters and academics. This chapter is a wake-up call to the drowsy constituents of academia and policy making, asking them to see beyond their normative accounting paradigm and in turn, showing them how far the strategy-oriented solutions they choose to ignore have come. In this chapter, we thus illustrate for the reader how reporting and management of companies’ knowledge resources and intellectual capital is possible through the strategic ideas of the Danish guideline for IC statements.
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There has been a lot of discussion in recent years of whether or not both accounting standards and firms’ reporting of their assets of intellectual capital to the business environment are sufficient. This discussion is often coupled with the emergence of the knowledge society and the so-called “new economy,” where intellectual capital, rather than physical capital, has become the pivotal factor underlying value creation. These changes, associated with the developments in the business environment, such as globalisation and faster innovation rates, have also altered the demands for organizational communication, because traditional financial reporting seemingly is unable to meet the information requirements of users. Hence, it is argued that the prerequisites for transparency have changed.

As such, this chapter promotes a link between the ongoing developments in global business and the necessity of managing intellectual capital; a link that can be attained through the strategic focus of the Danish guideline for intellectual capital reporting. Hence, the notion put forth here is that “accounting” for intellectual capital is a strategic management issue rather than an accounting-based measurement issue.

It is widely accepted that intellectual capital, strategy, and other drivers of value creation constitute strategically important elements for the future profitability and survival of companies. Many firms already disclose much supplementary information in their management commentary regarding strategy, market competition, technological developments, and products in the pipeline. Also, in the Nordic countries and, more recently, in a number of other European countries, companies have been experimenting with disclosing such voluntary and forward-looking disclosures through intellectual capital statements.

The problem, as well as the prospect, with strategy, is that it is about being different. Hence, the bundle of indicators on strategy, intellectual capital, and so forth, that will be relevant to disclose, will differ among firms. For such information to make any sense at all, it should be inserted in the particular firms’ strategic context, thereby determining their relevance in relation to the company’s value-creation process. In other words, it does not make sense to insert such information into a standardized accounting regime.

Therefore, further elaborations will need to move on from the accounting agenda, and at the least, recognize that these differing perspectives exist. It can be argued that the accounting agenda initially spurred the interest in supplementary business reporting (cf. American Institute of Certified Public Accountants [AICPA], 1994), but that the debate, in recent years, has moved on, and is now more preoccupied with visualizing strategy and the business model rather than measuring for example companies’ intangible assets in monetary terms. There have been a number of attempts at constructing business reporting models inherently concerned with strategy, and about showing future-oriented perspectives on the company, which accounting cannot.

Business reporting is the generic term used to identify the type of reporting that the accountancy profession has come to recognise as, if not a direct successor to its highly successful corporate reporting approach, then at least a complement. Because of this, like corporate reporting, business reporting is, at base, a further manifestation of financial reporting, the practice upon which a major part of the reputation of the accountancy profession is based. Assuming that the accountancy profession, one well known for its collective conservatism, is unlikely to willingly reconstitute itself in a radically different guise, it is reasonable to expect that a business-reporting approach is unlikely to depart significantly from the predecessor corporate-reporting approach.

Complete Chapter List

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Patricia Ordóñez de Pablos
Table of Contents
Chapter 1
Jakob Lauring, Toke Bjerregaard
This chapter deals with the role of language use and knowledge sharing in the context of international subsidiaries. The chapter analyzes the role... Sample PDF
Knowledge Sharing and Sociality: On the Linguistic Embeddedness of Knowledge Exchange in International Subsidiaries
Chapter 2
Ruth Alas
This chapter analyzes organizational changes and organizational learning in Estonian companies. During the last decades, Estonia has transformed... Sample PDF
Organizational Learning During Changes in Estonian Organization
Chapter 3
Giovanni Schiuma
Today’s global business is characterised by interconnectedness, interdependence, and an increasing level of complexity that force organisations to... Sample PDF
Strategies for Assessing Organisational Knowledge Assets
Chapter 4
Poul Houman Andersen
In order to capture market dividends and stay at par with the competition in the knowledge-based economy, firms must constantly develop their skill... Sample PDF
Division of Interfirm Activities in the Knowledge-Based Economy: The Crucial Role of Knowledge Processors
Chapter 5
Luiz Antonio Joia, Paulo Sérgio da Silva Sanz
Since the early 1990s, research has been conducted in an attempt to establish a viable and reliable manner of measuring the intangible assets, also... Sample PDF
The Conundrum of Valuing a Company's Intellectual Capital: The Role of Taken-for-Granted Indicators
Chapter 6
Tongo Constantine Imafidon
This chapter avers that over the past years, monolithic organizations, as opposed to multicultural organizations, have been created by many top... Sample PDF
The Multicultural Organization: A Historic Organizational Theory for Gaining Competitiveness in Global Business Environment
Chapter 7
Arla Juntunen
This chapter focuses on the challenges of developing a knowledge management platform to support organizational memory and knowledge transfer. The... Sample PDF
Developing a Corporate Memory as a Competitive Advantage in the ICT-Sector
Chapter 8
Corrado lo Storto
This chapter reports the findings of an empirical study whose purpose is to identify the attributes of the organization infrastructure that support... Sample PDF
Learning Organizations or Organizations for Learning? How Small Firms can Learn from Planned and Random Technical Problem-Solving: Implications for Technical Education
Chapter 9
Ernesto Villalba
The present study explores the relationship between the knowledge-enabling environment and the demand of training in 18 small private companies... Sample PDF
Learning at the Core: Knowledge Management as an Employer Strategy for Lifelong Learning
Chapter 10
Dimitris Bibikas, Iraklis Paraskakis, Alexandros G. Psychogios, Ana C. Vasconcelos
The increasing pressure of today’s highly globalised markets has lead organisations to continuously compete for knowledge and innovation. Despite... Sample PDF
An Integrated Knowledge Innovation Process Management Model: The Case of Skandia
Chapter 11
Christian Nielsen, Robin Roslender, Per Nikolaj Bukh
During the last decade, many calls for improving disclosure practices, in relation to intellectual capital and intangibles, have been uttered in the... Sample PDF
Intellectual Capital Reporting: Can a Strategy Perspective Solve Accounting Problems?
Chapter 12
Huei-Chen Hsu
The main points of this chapter are probing for the combination of information technology and virtual work, and how to change the distribution of... Sample PDF
Managing the Information Technology: Knowledge Transfer in Virtual Teams
Chapter 13
Miltiadis D. Lytras, Patricia Ordóñez de Pablos
Multinational companies (MNCs) are facing important challenges within the current economic context. Rapid technological changes, the globalization... Sample PDF
The Building of the Intellectual Capital Statement in Multinationals: Challenges for the Future
Chapter 14
Pedro López Sáez, José Emilio Navas López, Gregorio Martín de Castro
During more than a decade, the literature has provided several intellectual capital models. Nevertheless, empirical evidence is still necessary in... Sample PDF
Intellectual Capital in Knowledge-Intensive Firms: Exploring the Concept and Main Components in Boston's Route 128
Chapter 15
Weiling Ke, Kwok Kee Wei
This chapter uses organizational learning as a lens to study how firms implement the enterprise system. The core research questions are: What are... Sample PDF
Organizations and Learning Process: Its Antecedents and Consequences in Enterprise System Implementation
Chapter 16
Kholekile L. Gwebu, Jing Wang
Improvements in technology have led to innovations in training such as Electronic Learning (E-learning). E-learning aims to help organizations in... Sample PDF
The Role of Organizational Environmental, and Human Factors in E-Learning Diffusion
Chapter 17
Mikel Sorli, Dragan Stokic
Managing of knowledge for innovation in an extended enterprise (EE) environment is a key issue. This in turn requires effective utilization of... Sample PDF
Supporting Innovation Through Knowledge Management in the Extended Enterprise
Chapter 18
Luis Felipe Luna-Reyes
Contemporary organizations face the challenge of growing and advancing in a complex and changing environment (Johannessen, Olaisen, & Olsen, 2001;... Sample PDF
Government Innovation Through Knowledge Management
Chapter 19
Marc Henselewski, Stefan Smolnik, Gerold Riempp
Today’s business environment is characterized by highly transparent markets and global competition. Technology life cycles are decreasing due to the... Sample PDF
A Technology-Focused Framework for Integrating Knowledge Management into Strategic Innovation Management
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