How to Identify: Accounting

From an accountant's perspective, the main focus when dealing with intangible property is on the distinction between internally generated IP and acquired IP and how to value both.  Certain intangibles such as goodwill can sometimes be identified on the balance sheet.  However, most internally generated IP such as research & development and client portfolios will usually not be recognized on the balance sheet.  To detect internally generated IP through financial statements, accountants may look to other items such as capitalization to identify, for example, that a multinational bought a tradename from a third party.  When a company's IP is not capitalized, it becomes difficult to value and accountants usually request the help of an outside valuator if the company's IP needs to be valued for an acquisition.  

For those intangibles not found on the company's balance sheet, an accountant may turn to three alternative options for information on intangibles:

1. Accountants can look to annual reports or other relevant publicly held information.
2. Accountants can hold interviews with relevant people involved in the development and/or usage of the IP that will probably have more detailed information.  For example, the head of marketing will be able to provide information about brands and marketing intangibles.
3. Accountants can look to financial information released for internal purposes, to external investors, or to banks.  For example, a business plan presented to investors about the "true business model" typically provides considerable information concerning all aspects of the company from personnel to "pipeline products", including information about the intangibles that are used.