Keywords

Introduction

Recently growing importance of intangible assets in the process of building a competitive advantage in the market is observed. Among the intangible resources, a special role plays: the knowledge, the brand of a company, the market access and participation in it, the culture of an organization (standards, values, role models), and the qualitative characteristics of human resources (qualifications, skills, attitudes).

It is worth mentioning that among the specified resources, most of them qualify as the intellectual capital. An interesting view was expressed by G. Urbanek stating that “the intellectual capital is an invisible company’s resource that produces visible results. The intellectual capital is both knowledge in itself and the result of its transformation to intangible assets” (Urbanek 2007). It is therefore necessary to determine the impact of intangible assets on the functioning of economic entities in the global environment, in conditions of constant changes, uncertainties, and risks, to formulate appropriate measures of intangible assets, their valuation, and the possibility of presentation of multi-section information about these resources in reporting. However, neither the theory of accounting nor business practice does so far present a clear and precise definition of intangible assets or ways of their classification, measurement, and valuation.

The aim of the article is to present the nature and material scope of the intangible assets which are key factors in the process of doing business in the global market, as well as an indication of the possibility of their identification in the accounting system.

To solve the presented problem, the author used methods of analysis of literature, content of legal regulations, and a method of comparison and inference.

Company in the Process of Social and Economic Changes

In the economic literature, lots of views on the nature of the company can be met. Given the purpose of this paper, the essence of the company was adopted from the perspective of systems theory,Footnote 1 which emphasizes the holistic nature of the organization separated from the external environment, and at the same time associated with numerous and multidirectional interactions (Bielski 2002; Griffin 1996).

According to Bielski “the organization is an open social and technological goal-oriented system and having a specific structure (the way of order)” (Bielski 2002). At the same time, it should be added that the goals must assume active participation in the processes of changes in the environment, expose the individual’s characteristics of company’s development, and optimally utilize its potential (Komorowski 2002). Companies cannot avoid participation in the process of changes and social and economic development, because to a large extent are due to permanent and mutual interactions with the environment (Steinerowska 2009). It is worth quoting the view of T. Listwan who drew attention to the phenomenon being crucial for the functioning of the entity, such as “environment’s turbulence, globalization, demographic changes, role of technology, economy based on information and services, intellectualization of work” (Listwan 2005).

Given the variety of factors occurring in the external environment of the entity, one should recall the importance of an attribute of company’s flexibility in relation with the environment. It is in fact an essential condition for building a permanent competitive advantage and can even determine the existence of the entity. In the modern world, the flexibility of the organizational structure is no longer a subject of choice for the organization but a kind of compulsion. It may possibly choose whether to the flexibility as means/way of shaping their competitive advantage, it will take a reactive or proactive approach (Herman and Poznanska 2008).

The reactive assumption minimizes ongoing efforts of an organization for its adaptation to the changing matching conditions. It is also associated with the risk that necessary changes will be either too late inappropriately diagnosed or too late ineffectively implemented. The proactive way involves deliberate anticipating and preventive actions that will be able to contribute to the control of future developments.

In literature there are many models of organizations, ranging from the classic proposed by H. J. Leavitt (subsystems: goals, people, technology, structure), then extended with management subsystem according to the concept by L. Krzyzanowski (Griffin 1996; Kozminski and Piotrowski 2007; Krzyzanowski 1994), until today the 7S model by Peters, Phillips, and Waterman developed by the consulting firm McKinsey (strategy, structure, systems, skills, staff, management style, shared values) (Waterman et al. 1980).

Analyzing the contemporary model of organization functioning in a global environment (economic, political and legal, social, of science and technology, of ecosystem), essential elements (subsystems) of this model were indicated, such as strategy, structure, systems, skills, staff, management style, and shared values (Fig. 1). The contemporary business model considers the elements (subsystems) of the organization in a different way than the previous (classic) models did. The intellectual intangible assets, defined as organization’s specific attributes, take precedence over tangible values. Therefore, intangible assets are a key factor in building a strategy for success.

Fig. 1
figure 1

Organization as a system in a global environment (Source: own study based on Waterman et al. 1980)

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Analyzing the contemporary model of organization functioning in a global environment (economic, political and legal, social, of science and technology, of ecosystem), essential elements(subsystems) of this model were indicated, such as strategy, structure, systems, skills, staff, management style, and shared values (Fig. 1). The contemporary business model considers the elements (subsystems) of the organization in a different way than the previous (classic) models did. The intellectual intangible assets, defined as organization’s specific attributes, take precedence over tangible values. Therefore, intangible assets are a key factor in building a strategy for success.

In the presented business model 7S, among all the components, a special importance is given to the subsystem of values (a set of values, attitudes, beliefs) in relation to the business environment in the process of doing business.Footnote 2

The strategy, structure, and system form material resources, which are associated with the technical side of the company. The other three subsystems (staff, qualifications, management styles) represent the social resources of the company.

The evolution of views on the nature of the company in the era of social and economic changes led to distinguishing the resources as key determinants of achieving a competitive advantage by the company.

As a result, in contemporary literature and business practice, there is a new look at the essence of the company called “resource approach”. Representatives of this concept were B. Wernerfelt, A. Resource, (Prahalad and Hamel 1990; Suszynski 2007). At the same time, it should be noted that a special place in this trend is the knowledge of the intangible assets. They are referred to as “intangible assets without physical form, unique assets elements, which integrated with tangible assets may be the subject of strategic management” (Suszynski 2007).

In conclusion, it must be underlined that the company’s environment is the factor influencing the intangible assets. Economic, social, political and legal, ecological, technological changes taking place in the company’s surroundings, relations between entities, they all create a range of intangible assets.

Intangible Assets in Accounting

The discussion on the nature of modern company and its potential wealth presented in this article indicates, among others, a broad understanding of the assets of an intangible nature and how large a role they play in the process of building a competitive advantage in today’s world. These assets are, among others, knowledge, market access and participation in it, corporate reputation, organization culture, and the qualitative characteristics of human resources. However, neither the theory of accounting nor business practice does so far present a clear and precise definition of intangible assets nor ways of their classification, measurement, and valuation.

Low and Kalafut (2004) rightly expressed the view that “the economists do not know exactly what is happening because the measurements upon which they are based include only a portion of economic activity. The accountants see only a partial picture of the company because they have not developed tools to track and evaluate resources that cannot be touched or spend. The investors are moving in the dark.”

Emerging studies of reporting as a final product of accounting focus their attention mainly on intangible assets that meet the statutory requirements of the definition of “fixed assets,” regulated by the Accounting Act of 29 September 1994. Meanwhile, there is a need for methodological and tool solutions that can present more opportunities for measurement, valuation, and reporting on business under conditions of uncertainties and changes.

More detailed information on the intangible assets is determined in the International Financial Reporting Standard (IFRS) and in particular IAS 38 Intangible Assets and SIC-32 Intangible Assets: Web Site Costs (Kabalski 2015b). According to the standard, the intangible assets are identifiable as nonmonetary resources without any physical form. Assets are controlled by an entity as a result of past events, and stemming from the asset, it is expected of the entity to generate a future economic benefit.

In accordance with IAS 38, the intangible assets include scientific or technical knowledge, design and implementation of new processes or systems, licenses, intellectual property, market knowledge and trademarks (including brand names and publishing titles), computer software, patents, copyrights, motion picture films, customer lists, mortgage servicing rights, fishing licenses, import quotas, franchises, relations with customers or suppliers, customers loyalty, market share, and marketing rights. At the same time, it should be noted that not all the resources meet the definition of an intangible asset.

In the Polish legal regulations (Art. 3, Section 1, point 14 of the Accounting Act of 29 September 1994), the intangible assets are referred to intangible assets acquired by the entity, included in fixed assets; property rights suitable for business use, with the expected economic life longer than 1 year; intended to use by the entity; and in particular:

  • Wealth copyrights, related rights, licenses, concessions

  • The rights to inventions, patents, trademarks, utility, and ornamental patterns

  • Know-how

  • Acquired goodwill and completed development costs

The definition of intangible assets in IAS 38 defines synthetically their essence, does not impose to purchase and use them in the period longer than 1 year, and does not include the goodwill to their scope.

Under the additional requirement of IAS 38 in order to recognize an intangible resource as the intangible asset, they have to be characterized by traceability and controllability. The intangible assets are identifiable not only on the basis of a contract, or in other way, but also when they can be isolated and, for example, sold, transferred, granted rights to its use (a license), leased, and exchanged separately or together with a contract component asset or obligation (Kabalski 2015a). They can also be assets generated on their own if they meet the conditions (Kabalski 2015c):

  • It is possible from a technical point of view that the completion of the development works makes them fit for use or sale.

  • The entity intends to complete the development works and use or sell their effects.

  • The effect of development works in the form of an intangible asset will generate in the future economic benefits.

  • There are technological, financial, and other necessary resources to complete the development works and to use or sell their effect.

  • It is possible to reliably establish incurred costs of the intangible asset during the development works.

In accordance with IAS 38, the intangible assets are controllable if the entity gains economic benefits from them in a way that prevents simultaneously reaping these benefits by other entities.

Accounting Act of 29 September 1994 defines the intangible assets differently. As opposed to IAS 38, the statutory definition of intangible assets imposes an obligation to purchase (only acquired rights), with the exception of development. This means that this asset class can be classified only by the intangible assets purchased, received through donations or transferred in kind. The class does not include the intangible assets which are not used by the entity, but they are owned by it in order to achieve the economic benefits resulting from the increase in value of these assets, obtaining revenue in the form of interest, dividends (shares in profits), or other benefits, including commercial transactions (Art. 3, Section 1, point 17 of the Accounting Act of 29 September 1994). The differences in material scope between the Act and IAS 38 concerning the intangible assets are presented in Table 1.

Table 1 Material scope of the intangible assets
Full size table

In summary of the discussion of the nature and scope of the intangible assets in the accounting, it should be stated that they must meet certain conditions regulated by the provisions of national and international law, so that they can be identified in the accounting system. Their range presented in the financial statements is definitely much narrower than in the management sciences. Attention should be focused in the future on the construction of the model and the improvement of integrated reporting forms, which generates both financial information and nonfinancial (including a wide range of information on intangible assets). The proposed model of integrated reporting generates multi-section information useful in decision-making processes of business operations in the global market.

Conclusion

Presented discussion on the nature and material scope of the intangible assets in the process of building a competitive advantage, as well as an indication of the possibility of their identification in the accounting system, has fulfilled the aim of the paper.

The intangible assets recently occupy a particular place in the structure of business assets of a modern company. They affect the relationship between the entity and the environment in business activity. Among these resources they are, for example, knowledge, market access and participation in it, corporate reputation, organizational culture, and the qualitative characteristics of human resources. Most of intangible assets of the company create the so-called intellectual capital, which determines the strategy to competitively struggle.

The challenges of the modern world determine changes in the sphere of goals choices, and they shape the new way of company’s business. The intangible assets which are specific attributes of organizations are seen as superior to material values.

Social and economic transformations also have determined the process of changes in the accounting system, including the reporting subsystem, so that it should be adapted to the current conditions in which the entities operate. However, neither the theory of accounting nor business practice does so far present a clear and precise definition of intangible assets or ways of their classification, measurement, valuation, and the possibility of disclosure in reporting.

Emerging studies on reporting as a final product of accounting focus their attention mainly on the intangible assets that meet the statutory requirements of the definition of “fixed assets” according to the Accounting Act of 29 September 1994. The intangible assets must therefore meet certain conditions regulated by the provisions of national and international law, so that they can be identified in the accounting system. Meanwhile, there is a need for methodological and tool solutions presenting more opportunities for measurement, valuation, and reporting on business under conditions of uncertainties and changes.

The scope of disclosures of intangible assets presented in the financial statement is definitely much narrower than in the management sciences. Attention should be focused in the future on the construction of the model and the improvement of integrated reporting forms, which generates both financial information and nonfinancial (including a wide range of information on intangible assets). The proposed model of integrated reporting generates multi-section information useful in decision-making processes of business operations in the global market.