Madison Marcus | Are you undervaluing your business? Understand and manage intangible assets. - Madison Marcus

Are you undervaluing your business? Understand and manage intangible assets.

Author: Stephen Jenkins, Partner – Intellectual Property, Madison Marcus Law Firm

We are often asked why the identification and valuation of intangible assets, such as intellectual property rights, are important for business. This is a pertinent question to ask since the bytes of information which a business creates often exceed the value of the tangible assets.

Whether your business is a listed company entity or an unlisted company, the duties which apply to Directors to properly report the carrying value of intangible assets is the same. Each and every Director under the Corporations Act has a duty of skill, competence and diligence to understand a company’s financial report and assure that the report is accurate.

Failure to exercise this duty could lead to legal action against the company and/or its Directors for failure to properly report the true and accurate value of the intangible assets our company.

Accounting standards AASB136 and AASB13 deal with the valuation and impairment of non- financial assets such as:

  • ●   Goodwill;
  • ●   Identifiable intangible assets; and
  • ●   Property, plant and equipment.

Although there are some exceptions, most companies are covered by these standards.

How do you manage your intangible assets?
Also, ASIC through information sheet (INFO203) provides guidance as to what a Director should do in properly managing the reporting of the value of intangible assets which every company has. Importantly AASB136 specifies that irrespective of whether there are any indications of impairment, the company must annually undertake impairment test of:

  • (a)   Identifiable intangible assets with indefinite useful lives;
  • (b)   Intangible assets not yet available for use; and
  • (c)   Goodwill.

To enable Directors to fulfil their legal obligations, it is an imperative that each company:

  • (a)   Identify each and every item of intellectual property existing within the company;
  • (b)   Categorise each item of intellectual property and assess the ability of the company to generate income from that item;
  • (c)   Engage suitably qualified valuers to assess the “fair value” of the asset;
  • (d)   Identify the likely indicators of impairment in the carrying value of intangible asset such as:

●  a decline in the market or price for products or services;
●  oversupply in markets for products or services;
●  new competitors;
●  technological change;
●  changes in law or regulations;
●  changes in interest rates;
●  plans to dispose of assets earlier than expected;
●  plans to discontinue restructure

What are the risks of not properly managing these assets?

The consequences of not properly managing, reporting and dealing with the intellectual property assets in your business can include loss of value on sale of your business and/or legal action against the Directors for failure to comply with legal duties.

The proper management of the non-financial assets of your business is a whole of company issue and requires your legal team, businesses accountants and valuers to work together to provide proper advice as to the impairment testing of these assets.

We at Madison Marcus are often asked to assist clients to commercialise their IP. Our contacts in the angel investor and private equity industries provide a range of financial options. If you are unsure as to the intellectual property assets within your business, or in deed, the correct manner to report and deal with them, then please contact Stephen Jenkins Partner, Head of Intellectual Property at Madison Marcus on +61 437 008 253 or stephen.jenkins@madisonmarcus.co

stephen-jenkins-Partner-intellectual-property

Madison Marcus Law Firm produced this article. It is intended to provide general information in summary form on legal topics, current at the time of first publication. The contents do not constitute legal advice and should not be relied upon as such. Formal legal advice should be sought in particular matters.

Translate »