A Normative Approach to Valuation, Value Enhancement and Financial Statement Reporting of Intellectual Capital

Michael Soa, Janek Ratnatungab

a United International College, Beijing Normal University and Hong Kong Baptist University, China

b Institute of Certified Management Accountants, Australia

Abstract

Intellectual capital (IC) is increasingly seen as an integral part of a firm’s value-creating processes and an essential strategic asset in creating corporate sustainable competitive advantage (Bukh, 2003; Chen, Cheng & Hwang, 2005). Nevertheless, reporting on IC is currently inconsistent, incomparable, and incomplete because of a lack of consistent guidance. This paper presents a normative IC valuation and reporting framework based on the Capability Economic Value of Intangible and Tangible Assets (CEVITATM) approach (Ratnatunga, Gray & Balachandran, 2004). The proposed framework enables the application of CEVITATM to the valuation of intellectual capital capability and provides a theoretical foundation for future empirical studies in relation to IC valuation and reporting.

Keywords: Capability Economic Value of Intangible and Tangible Assets; Intellectual Capital; Valuation

About Prof Janek Ratnatunga 1129 Articles
Professor Janek Ratnatunga is CEO of the Institute of Certified Management Accountants. He has held appointments at the University of Melbourne, Monash University and the Australian National University in Australia; and the Universities of Washington, Richmond and Rhode Island in the USA. Prior to his academic career he worked with KPMG.
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