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What analysts want from financial reports


By Samantha White

The disclosures made by public companies should contain more detailed information about the value of brands and intangible assets, according to equity analysts.

Forty-nine per cent of those polled by Brand Finance said that public companies in their sector do not currently provide adequate information for investors on the value of their intangible assets, and 48% said companies did not provide sufficient information on the value of their brands.

The survey data suggest, however, that significant progress has been made in this area over the last 15 years. In the previous edition of the survey, conducted in 2001, 68% of those polled were dissatisfied with the information on intangible assets, and 76% said companies did not provide sufficient information on the value of their brands.

The 2016 edition highlighted some aspects which analysts largely found to be satisfactory, such as the degree and quality of information provided by companies in areas such as future market trends (61% of respondents deemed provision on this subject adequate), channel and distribution strategy (48%), and new product development activity (46%).

If additional marketing information were to be provided, the analysts polled said that the most appropriate place for it is in analyst/investor presentations (38%) or in the strategic review section of the annual report (29%). Just 6% said it should be presented in a separate marketing report.

Analysts were divided on the question of whether the disclosure of detailed marketing information would compromise an organisation’s competitive position. Nine per cent said it would harm competitiveness very seriously, 27% quite seriously, 36% somewhat, 24% to a very limited extent, and 4% not at all.

The brand-related metrics deemed to be most useful in investment decisions include customer retention, market share (growth, volume, and value), customer satisfaction, sustainable price premium, perceived quality, and brand awareness.

Inclusion on the balance sheet

Some aspects of the survey, conducted for the Global Intangible Financial Tracker 2016 report, were extended by The Chartered Institute of Management Accountants (CIMA) to include the views of CFOs.

Seventy-nine per cent of analysts and 80% of CFOs think that all acquired intangible assets should be separately included in the balance sheet.

Sixty-eight per cent of analysts and 58% of CFOs think all internally generated brands should be separately included in the balance sheet. Furthermore, 58% of CFOs and 73% of analysts think that all intangibles should be revalued each year to better reflect fair value. However International Accounting Standard (IAS) 38, Intangible Assets, currently forbids such an inclusion, prompting the report’s authors to call for change in accounting standards relating to intangible assets.

CFOs and analysts agreed that the valuation of intangible assets for inclusion in annual financial accounts should be conducted by an independent third party.

Who should prepare valuations of intangible assets?

   CFOs  Analysts
Independent third-party intangible asset valuers  46%  58%
Intangible asset valuers working for the company's auditors  19%  29%
Staff and directors of the companies concerned  30%  11%

Source: Brand Finance, CIMA.

 

Brand’s influence on other areas of the business

The sphere of influence of brand is growing – 53% of CFOs, and the same proportion of analysts, view brand as being important in 2016 in traditionally unbranded sectors. It is also becoming an increasingly important factor in other areas of the business such as M&A, risk management, and lending decisions.

The following percentages agree that brands are becoming more important in…  

CFOs Analysts
M&A activity 76% 72%
Risk management 68% 53%
Lending decisions 53% 47%
Financial reporting 53% 38%

Source: Brand Finance, CIMA.

Samantha White (swhite@aicpa.org) is a CGMA Magazine senior editor.