The Australian Accounting Standards Board (AASB) is currently deliberating over the recent US accounting standards requiring that internally generated intangible assets and goodwill be valued and placed on the Balance Sheet. This will require the Valuation of Patents, Trademarks, Customer Lists, R&D (Commercialisation phase) and any other Intangible Asset deemed separable or legal / contractual in nature. Goodwill will no longer be a mortised, but valued and tested for impairment annually. In conforming to global harmonisation schedules, the AASB is currently evaluating the direction of the International Accounting Standards Board (IASB), whose standards in the near future will in all probability mirror those of their US counterparts, the Financial Accounting Standards Board (FASB). namely FASB 141 "Business Combinations" and FASB 142 "Goodwill and Other Intangible Assets." The advent of FASB 141 and FASB in the US, eliminating amortisation of goodwill and requiring impairment testing for goodwill and identifiable intangible assets, highlights the necessity to value and understand the true worth of an organisations' intangible assets. The increasing dependence on intangible assets in creating shareholder returns and shift from historically valued tangible assets will require senior management to understand, measure and control the use of these assets.

The requirements of the new standards to test reporting units, goodwill and intangible assets for impairment resulting in the recent write downs for JDS Uni phase ($US 46 Billion) and AOL Time Warner ($US 54 Billion for Q 1 2002), mandate that Australian executives and investors must be far more aware of the role intangible assets and their interconnection with tangible assets, play in generating economic returns. The AASB Action Alert summarising the Board meeting of the 27-28 th of February confirmed that "Aligning the scope of the AASB's project (on valuation of intangible assets and goodwill) with the IASB's project will potentially result in a number of significant changes to current Australian GAAP." The AASB have recently released a Project Summary on Business Combinations further detailing progress and views on these issues. The AASB Board is currently reviewing the IASB's progress on the treatment of intangible assets and goodwill, with an exposure draft due shortly. Should the IASB adopt a similar stance to those of its US counterparts, there is strong possibility that the AASB will implement conforming standards, requiring Australian companies reporting under the AASB framework to value their goodwill and intangible assets on an ongoing basis.

Regulatory requirements aside, today's senior executive, investor and financier must understand the importance of categorizing and measuring intangible assets. This extends to lower debt and equity financing costs, alternative methods of financing (e. g. securitisation), strategic planning, project evaluation, goods and services pricing, merger / acquisition pricing, tax valuations, litigation pricing and structuring employee incentives. Critics may argue that intangible assets cannot be reliably gauged or valued and should therefore not be placed on the balance sheet or even used in financial analysis. One only needs to illustrate the lack of reliability of many traditional 'tangible' assets placed on the balance sheet to understand that this argument is flawed.

By way of example, in a large number of cases, Property, Plant and Equipment cannot be reliably measured especially when accounting for liquidity factors; begging the question as to why they would be allowed on the balance sheet, while intangibles would not, using this criteria. Quantify your intangibles, know your exposures, understand the assumptions, maximise your returns and control the risks. That way, earnings and risk won't come in the form of a black box.