Relevance and Reliability in Accounting for Intangible Assets

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Relevance and Reliability in Accounting for Intangible Assets

Asset accounting is an important process for every organization because it allows for assessing financial health and making appropriate decisions. One should explain that intangible assets are non-physical and long-term assets that are consumed over a few accounting periods (AccountingTools, 2022). When a firm reports its intangible assets, it should draw adequate attention to their relevance and reliability because the two are essential and can impact accounting quality.

Relevance and reliability are significant phenomena in accounting since they contribute to trustworthy results. Intangible asset accounting relies on a double-entry system because it is necessary to generate an income statement and a balance sheet (Barker et al., 2022).

Park and Jang (2021) indicate that relevance and reliability are important because they positively correlate with firm value creation. However, other scholars offer a different analysis because they differentiate the two phenomena and their importance. In particular, Ji (2018) indicates that reliability is primary because when asset accounting is reliable, the usefulness of accounting information can be enhanced, and reasonable decision-making can be promoted. Danielsson and Landblad (2021) support this statement and add that higher reliability leads to the increased relevance of accounting information. That is why organizations should do their best to ensure that reliability and relevance are incorporated into intangible asset accounting.

In conclusion, the paper has overviewed the importance of reliability and relevance of intangible asset accounting. Scholarly evidence has demonstrated that the two phenomena are significant because they promote increased quality of accounting information and improved decision-making. However, some researchers highlight the importance of reliability because this process is primary, and its increase leads to higher relevance. Thus, there is no doubt that organizations should draw adequate attention to the reliability and relevance of intangible asset accounting.

References

AccountingTools. (2022). Intangible asset accounting. Web.

Barker, R., Lennard, A., Penman, S., & Teixeira, A. (2022). Accounting for intangible assets: Suggested solutions. Accounting and Business Research, 52(6), 601-630. Web.

Danielsson, A., & Landblad, F. (2021). Unreliable accounting of intangible assets in a digital era: A study on the association between reliability and value relevance of intangible assets [Unpublished Master thesis]. Linnaeus University.

Ji, H. (2018). The value relevance and reliability of intangible assets: Evidence from South Korea. Global Business & Finance Review (GBFR), 23(2), 98-107. Web.

Park, K. & Jang, S. (2021). A study of value-relevance and reliability of intangible assets: What do we know from the restaurant industry? Journal of Hospitality and Tourism Management, 47, 104-113. Web.

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