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Situation of intangible assets in Spanish firms: an empirical analysis Isabel Gallego and Luis Rodrı´guez

Situation of intangible assets in Spanish firms 105

Department of Business Administration, University of Salamanca, Salamanca, Spain Abstract Purpose – The purpose of this work is to analyze, both from a theoretical and an empirical point of view, the significance of intangible assets in Spanish firms. Design/methodology/approach – To perform this study Spanish firms listed in the Spanish Securities and Exchange Commission (CNMV) were examined, in which intangible assets play a significant role in their business models. Using a questionnaire of 25 items, the final sample consisted of 39 firms (response rate ¼ 15.2 per cent) that could be used for the analyses. From the information thus gathered, a statistical treatment was implemented using the SPSS computer program and the answers to each of the 25 items were analysed. An analysis of principal components in the question was also established, in order to summarize all 12 reasons proposed into just a few factors. Findings – Among others, certain relevant conclusions about intangible assets indicated that: Spanish firms have moved from an industrial economy toward a knowledge-based economy; the disclosure of information about intangible assets in Spanish firms is still limited; some of the most relevant intangible assets are customer relationships, employee experience, information technologies, brand image, procedures and systems; and the number of indicators used by Spanish firms is about 20. Research limitations/implications – To select the sample for the questionnaire the database of the CNMV was used. The final sample thus comprised 257 firms, but the authors finally received answers from 39 firms. Practical implications – The paper is a very useful source of information for the Spanish firms and for investigators in this subject. Originality/value – This paper is pioneering in the analysis of the situation of intangible assets in Spanish firms, as well as in determining some of the most relevant intangible assets used by those firms. Keywords Intangible assets, Intellectual capital, Spain Paper type Research paper

1. Introduction One of the most significant topics to appear in the reporting of firms in both the national and international arenas is that relating to the treatment of intangible assets or intangible resources. Although traditional intangible assets, such as research and development (R&D), goodwill, etc., are recognized in the annual accounts of firms, there are other intangible assets that affect all areas of the firm, such as organization, marketing, finances, etc., and that are not recognized in annual accounts. Nevertheless, these resources create an important and crucial value for the organization. Such intangible assets are not identifiable in explicit form and are therefore highly The authors acknowledge Esther del Brıó, David Crowther and the reviewers’ useful comments in previous versions of the paper.

Journal of Intellectual Capital Vol. 6 No. 1, 2005 pp. 105-126 q Emerald Group Publishing Limited 1469-1930 DOI 10.1108/14691930510574690

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problematic since they are not generally recognized with a common definition, valuation and management. Additionally, there is little empirical evidence to provide information about the current status of such intangible assets in Spanish firms. This situation has prompted us to carry out research, both theoretical and empirical, into the field. To conduct the present work we used the most current and relevant references available regarding the topic. Our aims were dual: on the one hand, we wished to develop a panoramic view of the different theoretical aspects concerning intangible assets and, on the other, we wished to carry out an empirical study of the relevance of such assets in Spanish firms. In doing so, we took as a reference point the firms registered in the National Commission of the Stock Market on December 31, 2001, these firms being representative of different types of activity. In order to achieve the above aims, we developed our work as follows: after the introduction, we consider definitions of the most relevant intangible assets from the points of view of official standards and of suggested classifications. Next, we address the problems arising from the valuation and management of such assets and review the empirical work on intangible assets, focusing on the most current contributions. To develop our own empirical part, we describe the objectives that we are attempting to achieve, indicating the methodology applied to the investigation. Finally, we offer an explanation of the results obtained and discuss the general conclusions of the work. 2. Most relevant aspects of the definitions and classifications of intangible assets Beginning with International Accounting Standard IAS 38, issued by the IASB in July 1998, intangible assets are defined as an identifiable non-monetary asset without physical substance held for use in the production or supply of goods or services, for rental to others, or for administrative purposes. An asset is a resource controlled by an enterprise as a result of past events, and from which future economic benefits are expected to flow to the enterprise (IASB, 1998, para. 2). At the international level, and also relevant, are the statements produced by the North American FASB and, in particular relation to the aims of the present study, Statement Financial Accounting Standard No. 142 (FASB, 2001b) was issued in June, 2001. SFAS No. 142, relative to goodwill and other intangible assets, establishes that intangible assets are those that, not being financial, lack physical substance. As opposed to a detailed enumeration of requirements, NIC 38, the North American pronouncement, is outstanding for its brevity and its broadness of vision. Focusing on our own country, from the public arena it is necessary to refer to the position adopted in the General Accounting Plan (PGC) of 1990. The Plan proposes a series of intangible assets, grouped in the area of intangible fixed assets, and establishes standards of valuation for these. It provides that an intangible fixed asset is formed by “intangible wealth assets constituted by rights capable of economic valuation”. Thus this plan links intangible assets with associated rights of a legal type that are of any nature that can be valued. The PGC recognizes a series of intangible assets that can be valued without difficulty, but also excludes certain others, such as, for example, the geographical location of an entity, the loyalty of its customers, etc., whose valuation is complicated and controversial. In the private sector, of relevance is Document No. 3, produced by the Spanish Association of Accounting and Business Administration (AECA, 1991), which refers to

intangible fixed assets and capitalised expenses. In this document, the term “intangible fixed assets”, like the set of intangible assets recognized traditionally by accounting, refers to a set of assets with the following characteristics: . they are of intangible nature; . they are the fruits of economic transactions that originate from disbursements; . they have the ability to generate income in the future; . they are of greater duration than a fiscal year; . they depreciate over time; and . they hinder comparisons with market values. From an accounting perspective, in the conclusions of the Meritum Project (referred to below) Can˜ibano et al. (2002, p. 62) provide a definition of intangibles that attempts to highlight the common elements of the different definitions: . . . non-monetary sources of probable future economic profits, lacking physical substance, controlled (or at least influenced) by a firm as a result of previous events and transactions (self-production, purchase or any other type of acquisition), and that may or may not be sold separately from other corporate assets.

Regarding the classifications made by different standards and pronouncements, we would emphasize that – rather than a classification – both NIC No. 38 and the General Accounting Plan and Document No. 3 of AECA are limited to merely enumerating intangible assets. For example, paragraph no. 8 of NIC 38 indicates the following intangible assets: scientific and technological knowledge, design and implementation of new processes or new systems, licenses or grants, intellectual property, commercial knowledge and marks, computer programs, author’s copyright, movies, lists of customers, franchises, customer loyalty etc. The classification carried out by Can˜ibano et al. (2002) as a conclusion to the Meritum Project can be considered to be a combination of the classification in three fields, considering both fixed assets and activities. This classification establishes that intellectual capital is a combination of the human, organizational, and relational resources of an organization. Human capital is defined as the knowledge that employees take with them if they leave the firm. It includes people’s knowledge, skills, experiences and abilities. Structural capital is defined as the knowledge that remains within the firm at the end of the working day. It comprises organizational routines, procedures, systems, cultures, databases, etc. Relational capital is defined as all resources linked to the external relationships of the firm with customers, suppliers, or R&D partners. It comprises that part of human and structural capital involved in the firm’s relations with stakeholders, plus the perceptions that these hold about the company. This division into human, relational and organizational capital, including not only static assets, but also activities and dynamical relations, fits in better with the current situation of firms, independent valuation and measurements posing major difficulties in practice; we shall address these aspects after completing our empirical work. In any case, as indicated by Gro¨jer (2001, p. 710), we must assume that new forms of intangible assets will emerge in the future; that our universe of classification is subject to constant change, and that we are facing an issue that remains to be fully elucidated.


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3. Most relevant aspects of the valuation and management of intangibles After analyzing the different definitions and classifications proposed by standards issuing organizations and different authors, we now tackle the problem of the valuation and management of intangible assets. The accounting model used traditionally is applied to firms established for industrial manufacture or commercial activities, in which the valuation of physical and financial assets is fundamental. This grants absolute pre-eminence to tangible assets over intangible ones. Thus, accounting statements fail adequately to reflect items that do not appear in accounting books and that are therefore valued by the firms themselves, the competition, and the markets. This undoubtedly results in a lack of coordination between the criteria for the recognition and measurement of intangible assets and the characteristics of the current economy and the current situation of firms. At this point, therefore, we briefly analyze the accounting treatment of intangible assets in current accounting, both internationally and in Spain, before indicating later other possible valuation criteria. The accounting treatment of intangible assets proposed by the IASB, the FASB and the work of Garcıá and Arias (2002, pp. 9-12) can be summarized as follows: . The costs of internally developing, maintaining or restoring intangible assets that are not specifically identifiable, that have indeterminate lives, or that are inherent to a continuing business and that are related to an entity as a whole shall be recognized as an expense (FASB, 2001b, para. B23). . Industrial property rights are developed internally and these are capitalized. . An intangible asset that is acquired individually shall initially be recognized and measured based on a reasonable value. . When acquired through a business combination (SFAS 141 (FASB, 2001a)) an intangible asset shall be recognized as an asset apart from goodwill if it arises from contractual or other legal rights. NIC 38 allows a firm to capitalize it if a reasonable value can be reliably derived[1]. Otherwise this will be included within goodwill (IASB, 1998, para. 27-9). Consequently, as opposed to the recognition individually in the balance sheet of normally acquired assets, those developed internally are more likely to be considered as expenses in the profits and losses account. The Spanish situation concerning intangibles is not as advanced as that of the above international standards. The General Accounting Plan and the Resolution of the Spanish Accounting Standards Setting Board (ICAC) of January 21 1992 indicate the intangible assets that are recognized by Spanish legislation and that can form part of a balance sheet. The basic criterion of valuation of these is the acquisition price or production cost. It is necessary to amortize such items of fixed assets in the short-term (in general, not more than five years). The resources considered as intangible according to this work are human capital, customer and supplier relationships, the establishment of alliances, technology and internal processes . . .; they are expenses of the period in which they occur. The same appraisal can be applied to R&D expenses, which will be expenses of the period unless, at the end of a period, they fulfill a series of conditions concerning technical success and future economic or commercial profitability, etc. As mentioned, it is anticipated that accounting statements in Spain do not reflect the true internal situation of firms, since they do not consider such intangible assets to be

important for the firm. To obtain better information, both internally as well as externally, such statements must be complemented with notes in the annual report, with an intellectual capital report, or with other documents. It is therefore apparent that the valuation of intangible assets is extremely complicated, since in many cases there is either no reference to a market or there is an environment of uncertainty that prevents an objective appraisal of the value of such assets. As a result, our accounting statements are mere documents in black and white. Proposals for change have been made in financial documents, who suggests dividing the balance sheet into several levels, depending on the measurement criteria used for the different items. The first level would include items that satisfy traditional accounting criteria, and successive levels (up to a total of five) would hold items that differ from some characteristic of the traditional model, such as happens with the R&D expenses. The lowest level would be occupied by more uncertain items, such as goodwill. Other proposals are directed towards expanding the information provided by the annual report. Previously, many firms, especially those in northern European countries, have decided to evaluate their intellectual capital using financial and non-financial indicators with a view to being able to manage such intangible assets and to reflect them in a complementary report; we shall address this situation in our empirical study. In this respect, Nordic firms such as Celemi or Skandia are pioneers in the field, having published intellectual capital reports for the purpose of internal management use. Later, some models for the management of intangibles proposed in recent years (of the tools available to measure and manage intangible resources) will be presented. In particular, we shall focus on the Intellectual Assets Monitor (Sveiby, 1997) and on the Navigator of Skandia (Edvinsson presented by Mouritsen et al., 2001, pp. 399-421). Intellectual Assets Monitor (Sveiby) Another tool is the Intangible Assets Monitor (Sveiby, 1997). This focuses on three types of intangible assets: external structure assets, internal structure assets and employee competence assets. The Swedish firm Celemi uses this intangible assets measuring tool. In its Invisible Balance, Celemi classifies its assets into three main categories: customers (external structure assets), organization (internal structure assets) and people (employee competence assets) (Ordoń˜ez de Pablos, 2003, pp. 66-7). The Business Navigator of Skandia (Edvinsson) The Business Navigator consists of a kind of Balanced Scorecard with five aspects: financial, renewal and development, customer, process and human focus. Each aspect includes a series of indicators. Both models, which are specific to the management of the intellectual capital of the organization, have the advantages of flexibility and dynamism; they also allow comparisons to be made with other firms and can even be applied to non-profit organizations. Nevertheless, at present they are not very well developed: their methodologies are confusing and their development is still in its infancy. Chaminade and Johanson (2002) have studied the fact that the managerial culture of a country influences the appearance of certain types of report. While in Scandinavian countries many organizations produce this type of additional information, in Spain such information is scarce, although once the cultural barrier has been overcome, the


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development of intellectual capital should not present significant differences at national level. As a conclusion of the Meritum Project carried out by different European authors, a series of guidelines has been published (Can˜ibano et al., 2002, pp. 80-83) to assist managers and to disclose information on intangible assets, and to foster the presentation of comparable reports. The resulting report of the process of management of intangible assets should contain three parts: (1) The vision of the firm: strategic objectives accomplished by the company and how their achievement adds value for the firm’s customers and other stakeholders. (2) A summary of intangible resources and activities. (3) A system of indicators: these can be financial or non-financial and all of them must be verifiable. 4. Review of the empirical work on intangible assets The theoretical contributions concerning definitions, classifications, valuation and management of intangible assets have been revised by standards and pronouncements and have been reviewed by different authors. In this section, we focus on reviewing the empirical contributions that have been made concerning such assets. In this context, reference must be made to the Meritum Project (Measuring Intangibles to Understand and Improve Innovation Management), financed by the TSER Program of the European Commission. This project began in November 1998 and ended in April 2001. It has involved universities and organizations in different countries, namely, Spain (coordinator), France, Finland, Sweden, Denmark and Norway. During this Project, different documents emerged (see below) and these formed the basis of our empirical work: . After considering different definitions and classifications concerning Celemi and Skandia, Johanson (2000) focuses on a sample of 11 Swedish firms belonging to different sectors of activity with a view to analyzing how they define and classify intangible assets. . Bukh et al. (2001) used interviews and questionnaires in 19 Danish firms in order to analyze intellectual capital reports and how they were constructed. . Johanson et al. (2001) undertook an exploratory case study of 11 Swedish firms with a view to gaining insight into the importance of intangible assets as generators of results. The theoretical framework was based on a combination of evolutionary theory, of knowledge-based theory, and of learning organization. . Mouritsen et al. (2001) focused on the intellectual capital reports elaborated by Skandia and considered them to be examples of the disclosure of information about intangible assets. These reports combine numbers, graphs, schemes and story to indicate the creation of value that takes place in the organization as a consequence of its intangible assets. In the case of Spain, the main contribution comes from the Meritum Project. This study yielded conclusions that were collected in the Guidelines (Can˜ibano et al., 2002) and in those conclusions, the authors suggest the use of homogeneous and comparable indicators to enable intellectual capital to be measured and managed.

5. Objectives of the empirical study We derived a classification from different theoretical contributions concerning intangible assets, accepting as valid the classification of intangible assets based on three groups: human, structural and relational capital. Later, we determined the lines of research that have been developed on the topic to date considering as most productive the contributions from this area that help to create value for the company. Taking the works of Johanson (2000), Bukh et al. (2001), Johanson et al. (2001), Mouritsen et al. (2001) and the conclusions of the Meritum Project (Can˜ibano et al., 2002) as references, we undertook the present work in an attempt to analyze the situation of the valuation and management of intangible assets in Spanish firms. Although such endeavors have been undertaken in international firms, we wished to understand the reporting of intangible assets within Spanish firms belonging to different sectors of activity. Some of these sectors were considered in the Meritum Project, such as banks and electrical, electronic, insurance, research and telecommunications companies. Nevertheless, other sectors have not been studied and their study should afford us a better understanding of how these firms consider their intangible assets. Our aim was to garner the perceptions of financial directors concerning the intangible assets of their firms, their view as to whether these are assessed and recorded properly in the current framework, and whether they are sufficiently well reported in current financial statements. Likewise, we analyzed the use of indicators for the management of intangible assets and whether the companies produce some type of intellectual capital report; who – in the opinion of the financial directors – should produce this, and what the possible reasons for preparing such a report should be. We conclude the study with a general question concerning their opinion about the possible success factors in their respective organizations. 6. Methodology of the empirical study To accomplish the above, we developed a questionnaire of 25 items. To select the sample for the questionnaire we used the database of the Spanish Securities and Exchange Commission (CNMV), which includes Spanish firms from all sectors of activity. From this database, we chose those firms that had presented, at that time, their annual accounts for the financial year 2001. We did not wish to exclude the banks and saving banks sector (financial sector) since we believe that this is probably very important within Spanish the managerial economic framework and therefore undoubtedly affects the issue of the treatment of intangible assets. The final sample thus comprised 257 firms. Among the different options available for knowing the intangible, rather than traditional, assets of Spanish firms belonging to the different sectors of activity with greater precision and accuracy we used a questionnaire, although the information in the annual accounts only refers to intangible assets recognized legally. In January 2003, we sent the questionnaire specifically to the financial directors of the above-mentioned firms for two main reasons. First, within the managerial staff financial directors are considered to be most directly related to the question of intangible assets from the accounting and financial points of view. Thus, in the work of Bukh et al. (2001, p. 94) regarding 19 Danish firms, in order to analyze the intellectual capital reports and how these were constructed the units involved were usually the


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human resources and the accounting departments. Our second reason was because the chief executive of companies tends to have more functions and responsibilities and this could mean that insufficient attention might be paid to the questions asked. We finally received answers from 39 firms (see Table I), thereby obtaining a response percentage of 15.2 percent. In view of other studies that have employed the same methodology, this can considered acceptable. For example, in his study on the implementation of management accounting in Spain, Montesinos (1994, p. 8) achieved an average level of responses of 14 percent. Likewise, Garcıá et al. (2000, p. 62) obtained a response of 12 percent in their work addressing the factors that determine the choice and the change of auditors in Spanish firms. In a later work by Guenther and Beyer (2003, p. 144) concerning the publication of information about intangible assets in firms of the new economy in Germany, in a questionnaire sent to 343 firms the response percentage was 16 percent. Accordingly, our investigation lies within the range (12-16 percent) obtained in equivalent works. The firms from which we received response can be grouped in the sectors reflected in Table II and Figure 1. The structure of the questionnaire can be summarized as follows: . General aspects. In this part, we posed questions concerning the change of perspective inside the firms; that is, whether financial directors perceived their firms more as a set of material resources (traditional view of firms) or as a set of knowledge (vision of the economy of the current firm). There were also questions referring to the handling of intangible assets in the accounting books of the organization. . The most relevant intangible assets within the organization. Based on the classification of intangible assets into three groups, we selected four assets related to the human, structural, and relational capital respectively. To select these assets, we chose those considered most relevant in the works of Johanson et al. (2001) and Bukh et al. (2001). Likewise we asked questions regarding the change in the consideration of intangible assets within their own organization over time and the possibility of incorporating the assets selected into the financial report. . Indicators. From the works indicated above we chose a series of indicators referring to human, structural, and relational capital in order to determine whether they are currently used in Spanish firms. Logically, we allowed the financial directors to report other indicators that they use in their own organization and that were not included among the alternatives offered. . Intellectual capital report. In this section we investigated the appropriateness of reflecting intangible resources in some type of report both externally and internally. In turn, we asked the financial directors whether they compiled some type of report; who, in their opinion, these reports should be prepared by, and what the reasons for producing a report of this nature would be. . Compilation of surveys. Although in Scandinavian firms surveys of employees and customers are made quite often, we investigated whether they are used in Spanish firms and with what frequency. . Decisive success factors. Finally, we asked the financial directors to indicate which factors they believed were fundamental for the success of their own organization, all of them related to intangible assets (customer loyalty, employee

Ebro Puleva, SA Enagas, SA Ercros, SA Federico Paternina, SA Frimancha Industrias Ca´rnicas, SA Gas Natural SDG, SA Grupo Dragados, SA Grupo Empesarial ENCE, SA Hijos de Jose´ Bassols, SA Industrias del Curtido, SA Informes y Proyectos, SA

Manufacturing industries Energy and water New technologies Financing and insurances Financing and insurances Financing and insurances Financing and insurances Financing and insurances Agriculture and fishery Financing and insurances Financing and insurances Energy and water

Adolfo Domıńguez, SA Aguas de Valencia, SA Amper, SA Banco de Castilla, SA Banco de Cre´dito Baler, SA Banco de Sabadell, SA Banco de Valencia, SA Bankinter, SA Byada, SA Caixa de Aforros de Vigo, Ourense e Pontevedra Caja de Ahorros y Monte de Piedad de Zaragoza Compan˜´ıa Espanõla de Petro´leos, SA Compan˜´ıa Espanõla de Viviendas en Alquiler, SA Compan˜´ıa Trasmediterrańea Corporacioń Financiera Alba, SA (cash) (cash)

(banks) (banks) (banks) (banks) (banks)

Real estate Transport Financing and insurances (portfolio firms) Food, drink and tobacco Energy and water The chemical industry Food, drink and tobacco Food, drink and tobacco Energy and water Construction Paper and graphic arts Energy and water Manufacturing industries Trade and other services

Sector

Firms

7,058 868 976 98 140 6,081 59,300 2,470 42 224 114

130 1,550 43

1,003 36,624 966 867 405 7,730 1,693 3,019 n/a 2,952 4,180 10,222

Number of employees

2,161.566 1,821.792 243.190 37.529 99.860 5,267.889 5,541.945 468.551 5.189 27.131 27.069

10.209 313.552 12.128

118.339 2,555.680 218.863 46.306a 19.202a 223.176a 66.042 110.329 0.298 48.367a 151.978a 11,458.793

Annual sales (millions of euros)

(continued)

73.855 358.101 84.210 36.918 3.304 0.447 172.351 114.615 2.404 3.500 3.000

7.712 18.190 74.700

5.226 144.428 27.909 26.036 10.572 102.001 89.164 113.656 2.699 0.013 n/a 267.575

Share capital (millions of euros)


Table I. Spanish firms of the sample

Manufacturing industries Financing and insurances (insurances) Mining and solid fuels Paper and graphic arts Real estate Food, drink and tobacco Transport Energy and water Energy and water Communications New technologies Real estate Metal transformation industries

Manufacturas de Estambre, SA MAPFRE Vida, SA de Seguros y Reaseguros Minero Sideru´rgica de Ponferrada, SA Miquel y Costas & Miquel, SA Montebalito, SA Natra, SA Naviera Murueta, SA Repsol YPF, SA Sociedad General de Aguas de Barcelona, SA Telefońica, SA Terra Networks, SA Vallehermoso, SA Zardoya Otis, SA

Notes: a Profit for the financial year; Figures in millions of euros; n/a: not available Source: Financial statements, year 2002

Sector

Table I. 79 1,432 1,107 890 1 229 58 32,602 1,135 152,845 2,494 363 4,974

10.060 69.898a 94.183 149.730 2.621 76.620 6.674 35,555.000 88.723 28,411.300 616.946 833.173 605.814

Annual sales (millions of euros)

114

Firms

Number of employees

1.254 53.646 22.297 15.410 6.000 24.624 3.071 1,221.000 5.907 4,860.000 1,216.321 154.764 17.890

Share capital (millions of euros)

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Sector of the firm Financing and insurances Several transformation industries Energy and water Real estate Transport Other sectors Agriculture and fishery Trade and other services Communications Construction Metal transformation industries The chemical industry Mining and solid fuels New technologies Total

Number of firms

Percentage

9 9 7 3 2 9

23.08 23.08 17.95 7.69 5.12 23.08

39

100


Table II. Sample of firms

Figure 1. Structure of the sample

experience and professional outlook, technology of the productive process or service, continual innovation in the products offered, excellent relations with suppliers and others). From the information thus gathered, we implemented a statistical treatment using the SPSS the computer program and analyzed the answers to each of the 25 items. We also established an analysis of principal components in the question relating to the reasons for compiling an intellectual capital report in order to summarize all 12 reasons proposed in just a few factors. 7. Results of the empirical study Following the considerations and methodology referred to above, we proceeded to analyze the answers given in the questionnaires received. From that analysis, we obtained the following results that we divided into different points: . General aspects. . The most relevant intangible assets within the organization.

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Indicators. Intellectual capital report. Compilation of surveys. Decisive success factors.

General aspects The first question referred to the consideration of the firm as a set of material resources or as a set of knowledge. The opinion of financial directors was investigated to pinpoint to what extent they considered their company as a set of knowledge; 66.7 percent did so, in keeping with the knowledge-based economy that seems to have replaced the industrial economy based on material resources of earlier decades. This opinion was absolute in the financing and insurances and new technologies sectors. Conversely, 20.5 percent of participants continued believing that their organizations were based more on material resources than on knowledge. A percentage of 7.7 percent stated both factors, and 5.1 percent failed to answer this question. The second question, which refers to whether the intangible resources of the organizations are sufficiently reported in current financial statements, elicited a response that aroused some controversy. Thus, 82.1 percent of the financial directors of the firms admitted that these items are not sufficiently reported. By contrast, 17.9 percent believed that the financial statements, as designed at present, are sufficient. The first stance was mainly taken by financial directors from sectors such as financing and insurance (100 percent), new technologies (100 percent), energy and water (85.7 percent), and production industries (60 percent). Another relevant aspect is how the firms account for intangible resources; here we obtained four types of answer: (1) As expenses: 38.5 percent of the sample. This was the majority option in the financing and insurances (55.6 percent) and real estate (66.7 percent) sectors, among others. (2) As assets: 33.3 percent of the sample. (3) As assets and expenses: 20.5 percent of the sample. (4) No answer: 7.7 percent of the sample. In order to determine the structure of the sample with regard to traditional intangible assets, the financial directors had to indicate the intangible assets that their companies had available. The percentages of firms that had each of the assets of the General Accounting Plan are shown in Table III. The most relevant intangible assets within the organization To determine which intangible assets were most relevant within the organization, we analyzed four intangible resources related to human capital, and we proposed them to the financial directors to see whether they believed them to be relevant for their companies. Table IV shows the percentages of affirmative answers by sector and resource: The responses also indicated four other resources related to structural capital (technology and processes), obtaining the results by sector-resource (percentage of firms of corresponding sector that consider the resource indicated relevant) that appear in Table V.

Finally, we also proposed four intangible resources related to relational capital (relations of the firm with its environment). In this case, we obtained the results shown in Table VI (percentage of firms of the corresponding sector that consider the resource indicated relevant). The next question alluded to the appropriateness of reflecting both customers’ bases and the experience of the employees and the technology of the productive processes in financial reports. The majority response was negative (64.1 percent). We also requested information concerning of the way of valuing the intangible resources considered previously. Half of the sample used accounting principles and Assets

117

Percentage

Research and development expenses Industrial property rights Goodwill Leasing rights Computer applications Leasing

Financing and insurances Several transformation industries Energy and water Real estate Transport Other sectors Total of the sample


Situation of intangible assets in Spanish firms

59 43.6 53.8 17.9 82.1 53.8

Employee experience (%)

Teamwork capacity (%)

Creativity (%)

Learning capacity (%)

44.4 70 85.7 100 100 50 66.7

100 60 71.4 33.3 0 62.5 66.7

66.7 30 28.6 0 50 50 41

33.3 30 28.6 66.7 0 62.5 38.5

Procedures and systems (%)

Databases and documentation service (%)

Use of information technologies (%)

Innovation capacity (%)

33.3

66.7

66.7

55.6

70 57.1 100 0 87.5 61.5

0 57.1 0 50 37.5 35.9

40 42.9 66.7 0 62.5 52.8

50 42.9 33.3 50 37.5 46.2

Table III. Intangible assets of the sample (general accounting plan)

Table IV. Human capital in the sample firms

Table V. Structural capital in the sample firms

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standards (48.8 percent). The other half mainly used financial and non-financial indicators. Other options were also distinguished: accounting principles and standards in combination with internal reports, etc. To complete this part of the questionnaire, we asked whether the situation in the respective firm concerning the consideration and valuation of intangible assets had changed over time. The response was negative (56.4 percent), in comparison with 17 firms (43.6 percent) that had indeed changed their way of seeing intangible assets. Among the latter firms are those from the financing and insurance (55.6 percent) and energy and water (71.4 percent) sectors. Indicators From the intangible resources noted previously we proposed a series of possible indicators to measure and to manage resources, in the order in which they were indicated that they were used in their organizations. We left open the possibility of including other indicators used in the organizations. Table VII shows the percentages of firms of the sample, without distinction of sectors, that use each of the proposed indicators. Among the indicators used by the firms that do not appear in those proposed, we would highlight the following: . Employees’ experience: employee history, training record, record and management by competence. . Teamwork capacity: appraisal, individual capacity, assessment of objectives and management by competence. . Learning capacity: courses completed, evaluation of training activities, training and improvement plans. . Creativity: management by competence, number of proposals, quality circles, successfully developed products. . Use of information technologies: expenses of information technologies by turnover, intranet. . Production technology: production efficiency, measurements of the internal activity of processes, delay, ratio of different management strategies. . Databases: corporate databases. . Brand image: surveys, different types of statistics, number of products by group of customers.

Table VI. Relational capital in the sample firms


Brand image (%)

Supplier relationships (%)

Customer relationships (%)

Relationships with other firms (%)

88.9 70 71.4 33.3 100 75 74.4

0 20 14.3 33.3 0 37.5 17.9

88.9 80 71.4 66.7 50 87.5 79.5

11.1 0 28.6 33.3 0 50 20.5

Indicators Number of years that employees had worked in the firm Average age of employees Number of teams Training cost per employee Investment in product development Total investments in innovation activities Investment in process improvement Number of PCs per employee Soft- and hard-ware cost per employee Number of defects and errors in the installations of the firm Number of changes in such installations Repair costs Number of databases of the firms Database costs Percentage of long-term customers with respect to total number of consumers Percentage of turnover related to long-term customers Average duration of customer relationships Average duration of supplier relationships

.

.

Percentage of sample firms 59 38.5 17.9 51.3 38.5 41 46.2 33.3 30.8


38.5 10.3 33.3 20.5 15.4 43.6 35.9 48.7 28.2

Customer relationships: questionnaires and interviews, duration of contracts, surveys about degree of customer satisfaction, customer satisfaction, development of turnover by customers. Supplier relationships: access to extranet, purchases completed.

Finally, we asked the financial directors approximately how many indicators of intangible resources they used for management. The answers are summarized in Figure 2. Intellectual capital report In this section of the questionnaire, we first asked whether the financial directors considered it suitable to reflect intangible assets on the balance sheet, in an additional report, in both, or in neither. The answers obtained are summarized in Figure 3. In turn, we asked whether they produced some type of intellectual capital report, both in the external and in the internal area. The answers by sectors are shown in Table VIII. Regarding the possibility that a report of these characteristics might involve revealing too much information to their competition, the majority response was “not necessarily” with a percentage of 71.8 percent (28 firms). The rest of the sample believed that such a report might indeed give away too much information to the competition. Faced with the question of who should compile the intellectual capital report, the answers were highly varied. For 28.2 percent of the sample, this should be done by the human resources manager. A further 23.1 percent of the sample stated that the report

Table VII. Indicators used by the sample firms

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Figure 2. Number of indicators used

Figure 3. Intangible assets in documents

should be produced by the chief executive; 12.8 percent affirmed that it should be provided by external consultants; and 10.3 percent stated that it should be compiled by the human resources manager in collaboration with the financial director. The rest of the sample (25.6 percent) was divided between chief executive with human resources managers; external with internal consultants; only internal consultants, or external consultants in cooperation with someone from chief executive.

Finally, we proposed 12 possible reasons for compiling an intellectual capital report, for which the financial directors ranked them using a five-point Likert scale. Based on the corresponding calculations, the results are summarized in the Table IX. In order to summarize these 12 reasons in a series of explanatory factors, we applied principal component analysis (PCA). After obtaining a significant KMO (0.854) and verifying the measurements of adequacy of all 12 variables (all significant), we carried out a factorial analysis by PCA. In the principal matrix (without rotating) two components emerged, which together explained 66.635 percent of the total variance; this percentage can be considered acceptable for this type of study. We then performed a VARIMAX orthogonal rotation of the factors. The matrix of rotated components obtained is shown in Table X. Attending to the significance of the loadings, we distributed the variables between both components of the following way: . Component 1. Attract new employees, retain employees, improve customer relationships, demonstrate employee training, demonstrate human resources, improve supplier relationships, demonstrate innovation performed, and motivate innovation activities. In sum, we might refer to this component as “human relations and innovation” (56.07 percent of the total variance explained).

Sector Financing and insurances Several transformation industries Energy and water Real estate Transport Other sectors Total of firms of the sample

Reasons Support to the firm’s strategy Major facility to obtain bank loans Attract investors Demonstrate human resources Demonstrate innovations achieved Motivate innovation activities Improve customer relationships Improve supplier relationships Attract new employees Retain employees Demonstrate employee training Improve strategic planning Notes: 1, less relevant; 5, more relevant

External area (%)

Internal area (%)

22.2 0 0 0 50 25 12.8

44.4 30 42.9 0 50 12.5 30.8

Mean

Standard deviation

3.62 1.49 2.41 2.74 2.97 3.13 2.90 2.31 3.03 3.15 3.05 3.56

1.616 1.121 1.568 1.409 1.460 1.576 1.553 1.454 1.614 1.514 1.432 1.501


Table VIII. Percentage of firms of the sector that formulate intellectual capital reports: external and internal areas

Table IX. Reasons for compiling an intellectual capital report

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Table X. Matrix of rotated components

Reasons (variables) Support to the firm’s strategy Major facility to obtain bank loans Attract investors Demonstrate human resources Demonstrate innovations achieved Motivate innovation activities Improve customer relationships Improve supplier relationships Attract new employees Retain employees Demonstrate employee training Improve strategic planning Total variance explained (%) .

Component 1

Component 2

0.296 0.071 0.436 0.760 0.618 0.517 0.772 0.714 0.876 0.840 0.770 0.356 56.07

0.772 0.793 0.543 0.337 0.426 0.511 0.347 0.204 0.119 0.292 0.317 0.855 10.56

Component 2. Improve strategic planning, major facility to obtain bank loans, support to the firm’s strategy and attract investors; the denomination of this component would be “firm’s strategy and financing” (10.56 percent of the total variance explained).

Compilation of surveys In this section we present the results of our investigation regarding the implementation of surveys to employees and customers. In Table XI we summarize the affirmative answers by sector for the questions relating to the surveys that the firms undertook concerning its employees in order to value their opinions and perceptions, as well as the surveys on customers to take into consideration their opinions, degree of satisfaction, etc. Regarding frequency, the firms that survey their employees normally do so annually (65 percent), whereas surveys on customers show more variety: 31.5 percent annually, 26.3 percent quarterly, 15.8 percent monthly, etc. Decisive factors for success Finally, we asked the financial directors which factors they believed were decisive for the success of their companies. We proposed five possible factors related to those analyzed along the investigation, and also left open the possibility of including others.

Sector

Table XI. Compilation of surveys on employees and customers

Financing and insurances Several transformation industries Energy and water Real estate Transport Other sectors Total of firms of the sample

Employees (%)

Customers (%)

44.4 10 42.9 33.3 100 37.5 35.9

44.4 20 85.4 33.3 50 87.5 53.8

The proposed factors were: customer loyalty (CUSTOMERS), employee experience and their professional outlook (EMPLOYEES), technology of the productive process or service (TECHNOLOGY), continuous innovation in the products offered (INNOVATION), and an excellent relationship with the suppliers (SUPPLIERS). The respondents scored (from 1 to 5) each of these factors, and the average results are shown in Table XII. As a decisive factor of success in the energy and water sector, quality of service was also indicated.


Discussion of results As shown in previously published results, the valuation of intangible assets is considered to be fundamental for today’s companies, but Spanish firms do not reflect this opinion with their policy concerning the management of intangibles. For most firms (66.7 percent) it is considered to be more a set of knowledge. Also, a broader majority (82.1 percent) recognizes that the intangible assets of organizations are currently not sufficiently well reflected in existing financial statements. Within their organizations, financial directors consider assets such as employee experiences (66.7 percent), teamwork capacity (66.7 percent), procedures and systems (61.5 percent), use of information technologies (52.8 percent), brand image (74.4 percent) and the customer relationships (79.5 percent) to be relevant. From these results we can confirm that according to the study of the most relevant intangible assets and to PCA, both relational and human capital are the assets considered to be determinant for companies. Although financial directors recognize the insufficiency of current statements and the relevance of intangible assets, they do not believe it appropriate to reflect such assets in financial reports. The reason does not seem to be the giving away of excessive information to the competition (71.8 percent do not consider it to be dangerous from the strategic point of view). Nevertheless, it is only a minority of firms that have changed their vision of intangibles over time (43.6 percent). Regarding the use of indicators, we suggest that their use is limited among the firms included in the sample. More than 80 percent of the sample firms do not use all 20 indicators, whereas the reports of Skandia and Celemi use 25 indicators. By contrast, there is a series of habitual indicators, widely used in Spanish practice, such as the number of years that the employees have been working in the firm and training costs per employee. With regard to the possible compilation of intellectual capital reports, most firms think that the most suitable approach would be an additional report, although few of

Financing and insurances Several transformation industries Energy and water Real estate Transport Other sectors Total of firms of the sample

Customers

Employees

Technol.

Innov.

Suppl.

3.8 3.9 3.6 4.6 3.5 4.6 4

3.8 3.5 4.1 4.6 4.5 3.8 3.9

3.6 2.9 4.1 3.6 3.5 3.5 3.5

3.5 2.6 3 3.6 4 2.75 3

2.2 2.8 2.28 3 3 2.5 2.5

Table XII. Decisive factors for success by sectors

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them actually produce such documents (12.8 percent in the external area; 30.8 percent in the internal area). Apparently, they would mainly produce them as system of support to the managerial strategy and for the purposes of managing human resources. On the other hand, regarding human resources managers, chief executive, consultants, etc., these do not agree about who should be responsible for producing such a report. Regarding questionnaires, these are little used by the firms of the sample to measure and to manage their employees (35.9 percent); they are more frequently used for customer-related measurements (53.8 percent). In most sectors of the sample, the experience and professional outlook of the employees and customer loyalty are considered to be the main factors of managerial success. Thus, innovation and, in particular, relations with suppliers remain in second place. This conclusion is consistent with those indicated previously. 8. Conclusions In the present work we have attempted to gain insight into the treatment of intangible assets. It has been argued that these provide the basis of competitive advantage and hence their valuation and management are key to designing company strategy. Starting with the problem of their definition, we have studied the different possibilities of classification, the problems arising in valuation, and the different forms of management and diffusion. Our empirical work has attempted to study the perceptions of the executives of Spanish firms about the valuation of these intangibles, their presentation in documents (balance, intellectual capital report, etc), and the use of indicators for their management. We have highlighted the change of vision within companies, the view of their managers now being that companies should knowledge-based, and the insufficiency of current financial statements. Nevertheless, the financial directors do not believe it appropriate to include factors as such customer bases, employee experience, and the technology of the productive processes in balance sheets, and many of them have not changed their valuation and consideration of intangible assets. Indeed, the majority consider R&D and software application expenses as intangibles. However, they also recognize employee experience, teamwork capacity, procedures and systems, brand image, and customer relationships as relevant intangibles. To value the new intangibles, they use only a small number of indicators, unlike Swedish and Danish firms. Even though they would be prepared to use additional reports produced by the human resources manager or the chief executive, to provide information about intangibles few of them actually produce such documents. They admit that this would enable them principally to improve employee and customer relationships and to help managerial strategy. Customer loyalty and employee experience are the main factors to considered essential for the success of companies. From the results obtained, we believe it is possible to infer that the trend in Spanish companies regarding intangible assets is to improve their information about these, especially in the case of large companies. Up until a few years ago, Spanish companies only provided information about the traditional intangible assets of the General Accounting Plan (R&D expenses, goodwill, leasing rights, computer applications, etc.) since there had never been any law stipulating the obligation of Spanish firms to present further information. In our opinion, this may have acted as a barrier to more reporting about intangibles since, according to Chaminade and Johanson (2002):

. . . the Spanish firms should be clearly in favour of a more uniform and regulated framework detailed instructions on how to implement the Intellectual Capital management and disclosure system to ensure comparability and caution in the measurement of Intellectual Capital.

Contributing to this improvement to the diffusion of the information about intangibles is the Meritum Project, in which the guidelines for managing and reporting on intangibles are established. That Project has helped Spanish firms to have more knowledge about the issue and to establish an information model concerning such assets. We anticipate that in the future great store will be set in what is stipulated in the White Paper for the Reform of Accounting in Spain, compiled by the ICAC, which recommends the promotion of the design of indicators able to reflect the status of intangible assets forming part of companies’ patrimony and that such indicators should be given publicity and should be standardized among companies that, on a voluntary basis, wish to use them in their financial information so that one of the relevant types of information to be included in annual reports will be related to information about intangibles. In sum, many questions concerning the matter of intangible assets remain unanswered. In this sense, we must first seek homogeneous and comparable indicators and outline a model for the documentary presentation of intangible assets. In particular, international organizations should be mobilized so that in the future valuations of the market and of accounting books will not be so heterogeneous. Note 1. The term reasonable value refers to the price of exchange (if an active market exists) or the amount that can be satisfied by the assets in a free transaction between a buyer and a seller. References Asociacioń Espanõla de Contabilidad y Administracioń de Empresas (AECA) (1991), Documento No. 3 Sobre Principios Contables: Inmovilizado Inmaterial y Gastos Amortizables, AECA, Madrid. Bukh, P., Larsen, H. and Mouritsen, J. (2001), “Constructing intellectual capital statements”, Scadinavian Journal of Management, Vol. 17 No. 1, pp. 87-108. Can˜ibano, L., Garcıá-Ayuso, M., Sańchez, P. and Chaminade, C. (2002), “Guidelines for managing and reporting on intangibles”, Intellectual Capital Report, Fundacioń Airtel Mo´vil, Madrid. Chaminade, C. and Johanson, U. (2002), “Can guidelines for intellectual capital reporting be considered without addressing cultural differences? An explorative paper”, paper presented at the Conference “The Transparent Enterprise. The Value of Intangibles”, Madrid. Financial Accounting Standards Board (FASB) (2001a), Statement of Financial Accounting Concepts, No.141, Business Combinations, FASB, Stamford, CT. Financial Accounting Standards Board (FASB) (2001b), Statement of Financial Accounting Concepts, No. 142, Goodwill and Other Intangibles Assets, FASB, Stamford, CT. Garcıá, J.L. and Arias, A.M. (2002), “Una propuesta para la inclusioń de los intangibles en la informacioń financiera: el estado de capital intelectual”, X Encuentro de Profesores Universitarios de Contabilidad, ASEPUC, Santiago de Compostela, pp. 1-21. Garcıá, M.A., Ruiz, E. and Vico, A. (2000), “Factores que condicionan la eleccioń y el cambio de auditor en la empresa espanõla”, Revista de Contabilidad, Vol. 3 No. 6, pp. 49-80.


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Gro¨jer, J.E. (2001), “Intangibles and accounting classifications: in search of a classification strategy”, Accounting, Organizations and Society, Vol. 26 No. 7-8, pp. 695-713. Guenther, T. and Beyer, D. (2003), “Hurdles for the voluntary disclosure of information on intangibles: empirical results for ‘New Economy’ Industries”, paper presented at the 26th Annual European Accounting Association Congress, Seville. International Accounting Standards Board (IASB) (1998), IAS 38, Intangible Assets, IASB, London. Johanson, U. (2000), “Characteristics of intangibles – proposal generated for literature and experienced Swedish firms”, available at: www.eu-known.net Johanson, U., Martensson, M. and Skoog, M. (2001), “Measuring to understand intangible performance drivers”, The European Accounting Review, Vol. 10 No. 3, pp. 407-37. Montesinos, V. (Director) (1996), Estudio Sobre la Implantacioń de la Contabilidad de Gestioń en Espanã, Asociacioń Espanõla de Contabilidad y Administracioń de Empresas, Madrid. Mouritsen, J., Larsen, H. and Bukh, P. (2001), “Valuing the future: intellectual capital supplements at Skandia”, Accounting Auditing & Accountability Journal, Vol. 14 No. 4, pp. 399-422. Ordoń˜ez de Pablos, P. (2003), “Intellectual capital reporting in Spain: a comparative view”, Journal of Intellectual Capital, Vol. 4 No. 1, pp. 61-81. Sveiby, K.E. (1997), “Intellectual assets monitor”, available at: www.gestiondelconocimiento.com Further reading Bonilla, M.J., Santos, M. and Vega, M. (2000), “Algunas aportaciones de la contabilidad de costes y de gestioń ante la problema´tica de los activos intangibles”, VI Jornadas de Contabilidad de Costes y de Gestioń, Asociacioń Espanõla de Profesores Universitarios de Contabilidad, Burgos, pp. 1-15. Can˜ibano, L., Garcıá-Ayuso, M. and Sańchez, P. (1999), “La relevancia de los intangibles para la valoracioń y la gestioń de empresas: revisioń de la literatura”, Revista Espanõla de Financiacioń y Contabilidad, No. 100, pp. 17-88. CEF (1994), Plan General de Contabilidad, McGraw-Hill, Madrid. Edvinsson, L. and Malone, M. (1999), “Co´mo identificar y calcular el valor de los recursos intangibles de su empresa”, Gestioń 2000, Barcelona. Financial Accounting Standards Board (FASB) (1985), Statement Financial Accounting Standard, No. 6, Elements of Financial Statements, FASB, Stamford, CT. Instituto de Contabilidad y Auditoria de Cuentas (2002), “Libro blanco de la reforma de la contabilidad en Espanã”, available at: www.mineco.es