The valuation and recognition of internally generated brands & trademarks

Abstract: Title: The valuation and recognition of internally generated brands & trademarks Seminar date: 31st May 2017 Course: Degree project – Accounting and Finance, BUSN79 Authors: Mikael Nilsson & Aisha Hawwari Supervisor: Kristina Artsberg Examinator: Susanne Arvidsson Key words: Internally generated brands, Brand valuation, Reliability, Recognition, Accounting Purpose: In this thesis we aim to give insights into the question if the market considers the valuation of internally generated brands to be reliable and if the market considers the recognition of trademarks to provide useful information. We suppose that our contributions could be of guidance for future research in the subject area and serve as useful document for standard setters when deciding on future reforms of IFRS 3 and IAS 38. Methodology: This study is a qualitative study with a cross-sectional design consisting of semi-structured interviews with both preparers and users of financial information. Theoretical framework: Our theoretical framework consists of three main sections. Starting with defining a brand, we further move on to the presentation of the most recognized brand valuation methods and finalize with a presentation of the accounting debate concerning intangible assets and the recognition of internally generated brands. Empirical foundation: Our empirical research relies upon six interviews with various market participants where one participant is classified as a user of financial statements and the other five as preparers. We have received comments from two companies that, due to various reasons, declined to participate in an interview. Conclusions: We draw the conclusion that internally generated brands should not be recognized in the balance sheet for various reasons. First, the comparability problem is not perceived to be a major problem. Second, it is perceived to be difficult to value internally generated brands reliably. Third, users of financial statements do not find this information to be useful in making their economic decisions.