Washington, D.C.– Former SEC Commissioner Steven M.H. Wallman spoke today to licensing executives and Congressional staff about the importance of valuing and reporting intangible assets to businesses and the U.S. economy. The steady move toward an “idea-based” economy will force corporations, entrepreneurs and the government to re-evaluate how wealth is measured and reported.
Former SEC Commissioner Steven Wallman addresses the audience
“The main drivers of wealth production today in companies are obviously intangibles. The time when wealth was really PPE – property, plant, and equipment – is simply over and it’s been over for a while now…and the disparity between what you see in the financial disclosures and what a company actually has as its underlying drivers of wealth is a growing disparity,” Wallman said.
LES President James Malackowski gives introductory remarks
Wallman made his comments during a luncheon at the U.S. Capitol sponsored by IIPI, the Licensing Executives Society (LES) and hosted in conjunction with the Congressional Economic Leadership Institute (CELI). The program, “Accounting Standards in the New Economy”, is part of IIPI’s initiative to evaluate the implications of intangible asset valuation and reporting, and part of the Institute’s ongoing efforts to determine the value of intellectual property to the economy. Wallman’s discussion touched on eroding investor confidence, the volatility of stock prices and market values, and a trend toward emphasizing the reliability of information more than its usefulness and application.
Wallman, Commissioner of the SEC from 1994-1997, is a noted expert on the issue of intangible asset valuation. He is currently the founder and CEO of FOLIOfn, Inc. He was joined at the luncheon by Congressman Calvin Dooley (D-CA) and James Malackowski, President of LES.
Congressman Cal Dooley welcomes the audience
During his introductory remarks, Malackowski illustrated the critical importance of improving reporting of intangible assets. “If you were to select any of the companies of the Dow Jones Industrial index, I can assure you of two things,” he said. “First, their largest asset will be intangible and, second, that asset will not be reported on the balance sheet of those companies. In fact the statistic is often cited that over 75 percent of the market valuation of the S&P 500 is represented by intangible assets. The way we value and report those assets has tremendous implications for investment and economic growth in our country.”
“There are some assets that were just simply completely ignored. Internally generated IP, it’s ignored. It’s just not there. It’s an expense in any event in terms of the cost of producing it, and the asset that’s produced with that internally generated IP never shows up,” said Wallman. “On the other hand you go out and buy that IP, the identical IP, all of a sudden it shows up as an asset on the balance sheet. Does this make any sense? Of course not, but that’s what we have in terms of our current accounting.”
“So not only are we seeing the old days of property, plant, and equipment being the main drivers of wealth disappearing, but we’re also seeing a great disconnect between what our financial accounting system is supposed to be measuring and what it is that people care about measuring…That is not the way accounting is supposed to be working. It’s not the way business is supposed to be working…”