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The importance of intellectual capital reporting: evidence and implications

The importance of intellectual capital reporting: evidence and implications Purpose – This paper has two purposes: to identify and explain the major forces that are causing the increasing need for operational reporting and intellectual capital (IC) reporting for European companies; and to identify the necessary and sufficient conditions for operational and intellectual capital reporting if such reporting is to be meaningful for information users. Design/methodology/approach – The approach for this paper has been to examine relevant papers, reports, guidelines, compendiums, annual reports, opinions, submissions and legislation. Findings – Eight determining forces are identified that make the basis of the case for the provision of operating and IC information: the long‐standing global dominance and growth of the US economy; the emergence of business models other than the value chain (especially the emergence of network businesses); the changing nature of stock exchanges; the influence of different investment fund types (mutual, pension and hedge funds); the roles of buy‐side and sell‐side analysts; global and European investment index development; rating agency activity; and financial reporting and corporate governance regime development. Practical implications – The eight forces are interdependent and immutable. Comprehensive operational and IC reporting are unavoidable. Accordingly, the authors propose that the necessary and sufficient conditions for adequate enterprise information reporting are: a legal requirement for mandatory operational and IC reporting and attendant regulatory framework(s) where the legal framework is based on the concept of neglect; key operating and IC resource status and activity performance definitions and metrics that reflect the enterprise's underlying business model(s); and (3) a mapping of the capitalized operational and IC investments that are by definition normally expensed to the financial report accounts. Originality/value – The authors believe that no one has previously formally proposed a mandatory operational and IC reporting requirement; a legal reference frame of reference based on the legal concept of neglect; standard definitions for operational and IC performance metrics; a reference framework for information quality that is, inter alia , based on the consistency, comparability and comprehensiveness of reported metrics; and the requirement to map all capitalized IC resources back to the financial reports of the company. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Journal of Intellectual Capital Emerald Publishing

The importance of intellectual capital reporting: evidence and implications

Journal of Intellectual Capital , Volume 8 (1): 45 – Jan 23, 2007

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References (33)

Publisher
Emerald Publishing
Copyright
Copyright © 2007 Emerald Group Publishing Limited. All rights reserved.
ISSN
1469-1930
DOI
10.1108/14691930710715051
Publisher site
See Article on Publisher Site

Abstract

Purpose – This paper has two purposes: to identify and explain the major forces that are causing the increasing need for operational reporting and intellectual capital (IC) reporting for European companies; and to identify the necessary and sufficient conditions for operational and intellectual capital reporting if such reporting is to be meaningful for information users. Design/methodology/approach – The approach for this paper has been to examine relevant papers, reports, guidelines, compendiums, annual reports, opinions, submissions and legislation. Findings – Eight determining forces are identified that make the basis of the case for the provision of operating and IC information: the long‐standing global dominance and growth of the US economy; the emergence of business models other than the value chain (especially the emergence of network businesses); the changing nature of stock exchanges; the influence of different investment fund types (mutual, pension and hedge funds); the roles of buy‐side and sell‐side analysts; global and European investment index development; rating agency activity; and financial reporting and corporate governance regime development. Practical implications – The eight forces are interdependent and immutable. Comprehensive operational and IC reporting are unavoidable. Accordingly, the authors propose that the necessary and sufficient conditions for adequate enterprise information reporting are: a legal requirement for mandatory operational and IC reporting and attendant regulatory framework(s) where the legal framework is based on the concept of neglect; key operating and IC resource status and activity performance definitions and metrics that reflect the enterprise's underlying business model(s); and (3) a mapping of the capitalized operational and IC investments that are by definition normally expensed to the financial report accounts. Originality/value – The authors believe that no one has previously formally proposed a mandatory operational and IC reporting requirement; a legal reference frame of reference based on the legal concept of neglect; standard definitions for operational and IC performance metrics; a reference framework for information quality that is, inter alia , based on the consistency, comparability and comprehensiveness of reported metrics; and the requirement to map all capitalized IC resources back to the financial reports of the company.

Journal

Journal of Intellectual CapitalEmerald Publishing

Published: Jan 23, 2007

Keywords: Financial reporting; Intellectual capital; Shareholder value analysis

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