A consolidated financial statement (CFS) is the "financial

statement of a group in which the assets, liabilities,

equity, income, expenses and cash flows of the parent company and
its subsidiaries are presented as those of a single economic entity",
according to the definitions stated in International Accounting
Standard 27, "Consolidated and separate financial statements",
and International Financial Reporting Standard 10, "Consolidated
financial statements".[1][2]

Consolidated statement of financial position

Consolidated accounts are prepared after the accounts for the
constituent companies have been prepared.[3] While preparing a
consolidated financial statement, there are two basic procedures
that need to be followed: first, cancelling out all the items that are
accounted as an asset in one company and a liability in another, and
then adding together all uncancelled items.
There are two main type of items that cancel each other out from
the consolidated statement of financial position.
 "Investment in subsidiary companies" which is treated as an asset in
the parent company will be cancelled out by "share capital" account
in subsidiary's statement. Only the parent company's "share capital"
account will be included in the consolidated statement.
 If trading between different companies in one group takes place,
then the payables of one company will be cancelled out by the
receivables of another company.

Legislation
In the United Kingdom, section 399 of the Companies Act
2006 requires parent company directors to prepare group accounts
unless an exemption applies. Small groups are exempt, where total
net assets are below £5.1m, annual turnover is less than £10.2m, or
the average number of employees is below 50. Two of these three
conditions must be met.[4]

Specific approaches to consolidation

Goodwill arising on consolidation
Goodwill is treated as an intangible asset in the consolidated
statement of financial position. It arises in cases where the cost of
purchase of shares is not equal to their par value. For example, if a
 company buys shares of another company worth $40,000 for
$60,000, there is a goodwill worth $20,000.
Proforma for calculating goodwill is as follows: [5]
Goodwill
Fair value of consideration transferred
Plus fair value of non-controlled interest at acquisition
Less ordinary share capital of subsidiary company
Less share premium of subsidiary company
Less retained earnings of subsidiary company at acquisition date
Less fair value adjustments at acquisition date
Non-controlling interests
If the parent company does not own 100% of shares of the
subsidiary company, there is a proportion of the net assets owned
by an external shareholder. This proportion that is related to outside
investors is called the minority interest or non-controlling interest
(NCI).
The proforma for calculating the NCI is as follows:
Non-controlling interest
Fair value of NCI at acquisition date
Plus NCI's share of post-acquisition retained earnings or other
reserves
Intra-group trading
A group of companies may have trade relations with each other, for
example, where company A buys goods for one price and sells them
to another company inside the group for another price. Thus,
company A has earned some revenue from selling, but the group as
a whole did not make any profit out of that transaction. Until those
goods are sold to an outsider company, the group has unrealised
profit.

See also
 Associate company
 Business valuation
 Consolidation (business)
 Enterprise value
 Minority interest

References
Further reading
 Alexander, D., Britton, A., Jorissen, A., "International Financial
Reporting and Analysis", Second Edition, 2005, ISBN 978-1-84480-
201-2,
 Roy Dodge, Group Financial Statements, London: Chapman & Hall,
1996

Foreign exchange risk (also known as FX risk, exchange rate

risk or currency risk) is a financial risk that exists when a financial
transaction is denominated in a currency other than the domestic
currency of the company. The exchange risk arises when there is a
risk of an unfavourable change in exchange rate between the
domestic currency and the denominated currency before the date
when the transaction is completed.[1][2]
Foreign exchange risk also exists when the foreign subsidiary of a
firm maintains financial statements in a currency other than the
domestic currency of the consolidated entity.
Investors and businesses exporting or importing goods and services,
or making foreign investments, have an exchange-rate risk but can
take steps to manage (i.e. reduce) the risk.[3][4]

History
Many businesses were unconcerned with, and did not manage,
foreign exchange risk under the international Bretton Woods
system. It was not until the switch to floating exchange rates,
following the collapse of the Bretton Woods system, that firms
became exposed to an increased risk from exchange rate
fluctuations and began trading an increasing volume of financial
derivatives in an effort to hedge their exposure. [5][6] The currency
crises of the 1990s and early 2000s, such as the Mexican peso
crisis, Asian currency crisis, 1998 Russian financial crisis, and
the Argentine peso crisis, led to substantial losses from foreign
exchange and led firms to pay closer attention to their foreign
exchange risk.[7]

Types of foreign exchange risk

Economic risk
A firm has economic risk (also known as forecast risk) to the degree
that its market value is influenced by unexpected exchange-rate
fluctuations, which can severely affect the firm's market share with
regard to its competitors, the firm's future cash flows, and ultimately
the firm's value. Economic risk can affect the present value of future
cash flows. An example of an economic risk would be a shift in
exchange rates that influences the demand for a good sold in a
foreign country.
Another example of an economic risk is the possibility that
macroeconomic conditions will influence an investment in a foreign
country.[8] Macroeconomic conditions include exchange rates,
government regulations, and political stability. When financing an
investment or a project, a company's operating costs, debt
obligations, and the ability to predict economically unsustainable
circumstances should be thoroughly calculated in order to produce
adequate revenues in covering those economic risks. [9] For instance,
when an American company invests money in a manufacturing plant
in Spain, the Spanish government might institute changes that
negatively impact the American company's ability to operate the
plant, such as changing laws or even seizing the plant, or to
otherwise make it difficult for the American company to move its
profits out of Spain. As a result, all possible risks that outweigh an
investment's profits and outcomes need to be closely scrutinized
and strategically planned before initiating the investment. Other
examples of potential economic risk are steep market downturns,
unexpected cost overruns, and low demand for goods.
International investments are associated with significantly higher
economic risk levels as compared to domestic investments. In
international firms, economic risk heavily affects not only investors
but also bondholders and shareholders, especially when dealing with
the sale and purchase of foreign government bonds. However,
economic risk can also create opportunities and profits for investors
globally. When investing in foreign bonds, investors can profit from
the fluctuation of the foreign-exchange markets and interest rates in
different countries.[9] Investors should always be aware of possible
changes by the foreign regulatory authorities. Changing laws and
regulations regarding sizes, types, timing, credit quality, and
disclosures of bonds will immediately and directly affect
investments in foreign countries. For example, if a central bank in a
foreign country raises interest rates or the legislature increases
taxes, the return on investment will be significantly impacted. As a
result, economic risk can be reduced by utilizing various analytical
and predictive tools that consider the diversification of time,
exchange rates, and economic development in multiple countries,
which offer different currencies, instruments, and industries.
When making a comprehensive economic forecast, several risk
factors should be noted. One of the most effective strategies is to
develop a set of positive and negative risks that associate with the
standard economic metrics of an investment.[10] In a macroeconomic
model, major risks include changes in GDP, exchange-rate
fluctuations, and commodity-price and stock-market fluctuations. It
is equally critical to identify the stability of the economic system.
Before initiating an investment, a firm should consider the stability
of the investing sector that influences the exchange-rate changes.
For instance, a service sector is less likely to have inventory swings
and exchange-rate changes as compared to a large consumer
sector.
Contingent risk
A firm has contingent risk when bidding for foreign projects,
negotiating other contracts, or handling direct foreign investments.
Such a risk arises from the potential of a firm to suddenly face a
transnational or economic foreign-exchange risk contingent on the
outcome of some contract or negotiation. For example, a firm could
be waiting for a project bid to be accepted by a foreign business or
government that, if accepted, would result in an immediate
receivable. While waiting, the firm faces a contingent risk from the
uncertainty as to whether or not that receivable will accrue.
Transaction risk
Companies will often participate in a transaction involving more
than one currency. In order to meet the legal and accounting
standards of processing these transactions, companies have to
translate foreign currencies involved into their domestic currency. A
firm has transaction risk whenever it has contractual cash flows
(receivables and payables) whose values are subject to
unanticipated changes in exchange rates due to a contract being
denominated in a foreign currency. To realize the domestic value of
its foreign-denominated cash flows, the firm must exchange, or
translate, the foreign currency for domestic.
When firms negotiate contracts with set prices and delivery dates in
the face of a volatile foreign exchange market, with rates constantly
fluctuating between initiating a transaction and its settlement, or
payment, those firms face the risk of significant loss. [11] Businesses
have the goal of making all monetary transactions profitable ones,
and the currency markets must thus be carefully observed. [11][12]
Applying public accounting rules causes firms with transnational
risks to be impacted by a process known as "re-measurement". The
current value of contractual cash flows are remeasured on each
balance sheet.
Translation risk
A firm's translation risk is the extent to which its financial reporting
is affected by exchange-rate movements. As all firms generally must
prepare consolidated financial statements for reporting purposes,
the consolidation process for multinationals entails translating
foreign assets and liabilities, or the financial statements of foreign
subsidiaries, from foreign to domestic currency. While translation
risk may not affect a firm's cash flows, it could have a significant
impact on a firm's reported earnings and therefore its stock price.
Translation risk deals with the risk to a company's equities, assets,
liabilities, or income, any of which can change in value due to
fluctuating foreign exchange rates when a portion is denominated in
a foreign currency. A company doing business in a foreign country
will eventually have to exchange its host country's currency back
into their domestic currency. When exchange rates appreciate or
depreciate, significant, difficult-to-predict changes in the value of
the foreign currency can occur. For example, U.S. companies must
translate Euro, Pound, Yen, etc., statements into U.S. dollars. A
foreign subsidiary's income statement and balance sheet are the
two financial statements that must be translated. A subsidiary doing
business in the host country usually follows that country's
prescribed translation method, which may vary, depending on the
subsidiary's business operations.
Subsidiaries can be characterized as either an integrated or a self-
sustaining foreign entity. An integrated foreign entity operates as an
extension of the parent company, with cash flows and business
operations that are highly interrelated with those of the parent. A
self-sustaining foreign entity operates in its local economic
environment, independent of the parent company. Both integrated
and self-sustaining foreign entities operate use functional currency,
which is the currency of the primary economic environment in which
the subsidiary operates and in which day-to-day operations are
transacted. Management must evaluate the nature of its foreign
subsidiaries to determine the appropriate functional currency for
each.
There are three translation methods: current-rate method, temporal
method, and U.S. translation procedures. Under the current-rate
method, all financial statement line items are translated at the
"current" exchange rate. Under the temporal method, specific
assets and liabilities are translated at exchange rates consistent
with the timing of the item's creation.[13] The U.S. translation
procedures differentiate foreign subsidiaries by functional currency,
not subsidiary characterization. If a firm translates by the temporal
method, a zero net exposed position is called fiscal balance. [14] The
temporal method cannot be achieved by the current-rate method
because total assets will have to be matched by an equal amount of
debt, but the equity section of the balance sheet must be translated
at historical exchange rates.[15]

Measuring risk
If foreign-exchange markets are efficient—such that purchasing
power parity, interest rate parity, and the international Fisher
effect hold true—a firm or investor need not concern itself with
foreign exchange risk. A deviation from one or more of the three
international parity conditions generally needs to occur for there to
be a significant exposure to foreign-exchange risk. [16]
Financial risk is most commonly measured in terms of
the variance or standard deviation of a quantity such as
percentage returns or rates of change. In foreign exchange, a
relevant factor would be the rate of change of the foreign currency
spot exchange rate. A variance, or spread, in exchange rates
indicates enhanced risk, whereas standard deviation represents
exchange-rate risk by the amount exchange rates deviate, on
average, from the mean exchange rate in a probabilistic
distribution. A higher standard deviation would signal a greater
currency risk. Because of its uniform treatment of deviations and for
the automatically squaring of deviation values, economists have
criticized the accuracy of standard deviation as a risk indicator.
Alternatives such as average absolute
deviation and semivariance have been advanced for measuring
financial risk.[4]
Value at risk
See also: Earnings at risk
Practitioners have advanced, and regulators have accepted, a
financial risk management technique called value at risk (VaR),
which examines the tail end of a distribution of returns for changes
in exchange rates, to highlight the outcomes with the worst returns.
Banks in Europe have been authorized by the Bank for International
Settlements to employ VaR models of their own design in
establishing capital requirements for given levels of market risk.
Using the VaR model helps risk managers determine the amount
that could be lost on an investment portfolio over a certain period of
time with a given probability of changes in exchange rates.

Managing risk
See also: Foreign exchange hedge
Transaction hedging
Firms with exposure to foreign-exchange risk may use a number of
hedging strategies to reduce that risk. Transaction exposure can be
reduced either with the use of money markets, foreign exchange
derivatives—such as forward contracts, options, futures contracts,
and swaps—or with operational techniques such as currency
invoicing, leading and lagging of receipts and payments, and
exposure netting.[17] Each hedging strategy comes with its own
benefits that may make it more suitable than another, based on the
nature of the business and risks it may encounter.
Forward and futures contracts serve similar purposes: they both
allow transactions that take place in the future—for a specified price
at a specified rate—that offset otherwise adverse exchange
fluctuations. Forward contracts are more flexible, to an extent,
because they can be customized to specific transactions, whereas
futures come in standard amounts and are based on certain
commodities or assets, such as other currencies. Because futures
are only available for certain currencies and time periods, they
cannot entirely mitigate risk, because there is always the chance
that exchange rates will move in your favor. However, the
standardization of futures can be a part of what makes them
attractive to some: they are well-regulated and are traded only on
exchanges.[18]
Two popular and inexpensive methods companies can use to
minimize potential losses is hedging with options and forward
contracts. If a company decides to purchase an option, it is able to
set a rate that is "at-worst" for the transaction. If the option expires
and it's out-of-the-money, the company is able to execute the
transaction in the open market at a favorable rate. If a company
decides to take out a forward contract, it will set a specific currency
rate for a set date in the future.[19][20]
Currency invoicing refers to the practice of invoicing transactions in
the currency that benefits the firm. This does not necessarily
eliminate foreign exchange risk, but rather moves its burden from
one party to another. A firm can invoice its imports from another
country in its home currency, which would move the risk to the
exporter and away from itself. This technique may not be as simple
as it sounds; if the exporter's currency is more volatile than that of
the importer, the firm would want to avoid invoicing in that
currency. If both the importer and exporter want to avoid using their
own currencies, it is also fairly common to conduct the exchange
using a third, more stable currency.[21]
If a firm looks to leading and lagging as a hedge, it must exercise
extreme caution. Leading and lagging refer to the movement of
cash inflows or outflows either forward or backward in time. For
example, if a firm must pay a large sum in three months but is also
set to receive a similar amount from another order, it might move
the date of receipt of the sum to coincide with the payment. This
delay would be termed lagging. If the receipt date were moved
sooner, this would be termed leading the payment. [22]
Another method to reduce exposure transaction risk is natural
hedging (or netting foreign-exchange exposures), which is an
efficient form of hedging because it will reduce the margin that is
taken by banks when businesses exchange currencies; and it is a
form of hedging that is easy to understand. To enforce the netting,
there will be a systematic-approach requirement, as well as a real-
time look at exposure and a platform for initiating the process,
which, along with the foreign cash flow uncertainty, can make the
procedure seem more difficult. Having a back-up plan, such as
foreign-currency accounts, will be helpful in this process. The
companies that deal with inflows and outflows in the same currency
will experience efficiencies and a reduction in risk by calculating the
net of the inflows and outflows, and using foreign-currency account
balances that will pay in part for some or all of the exposure. [23]
Translation hedging
Translation exposure is largely dependent on the translation
methods required by accounting standards of the home country. For
example, the United States Federal Accounting Standards
Board specifies when and where to use certain methods. Firms can
manage translation exposure by performing a balance sheet hedge,
since translation exposure arises from discrepancies between net
assets and net liabilities solely from exchange rate differences.
Following this logic, a firm could acquire an appropriate amount of
exposed assets or liabilities to balance any outstanding discrepancy.
Foreign exchange derivatives may also be used to hedge against
translation exposure.[17]
A common technique to hedge translation risk is called balance-
sheet hedging, which involves speculating on the forward market in
hopes that a cash profit will be realized to offset a non-cash loss
from translation.[24] This requires an equal amount of exposed
foreign currency assets and liabilities on the firm's consolidated
balance sheet. If this is achieved for each foreign currency, the net
translation exposure will be zero. A change in the exchange rates
will change the value of exposed liabilities to an equal degree but
opposite to the change in the value of exposed assets.
Companies can also attempt to hedge translation risk by purchasing
currency swaps or futures contracts. Companies can also request
clients to pay in the company's domestic currency, whereby the risk
is transferred to the client.
Strategies other than financial hedging
Firms may adopt strategies other than financial hedging for
managing their economic or operating exposure, by carefully
selecting production sites with a mind for lowering costs, using a
policy of flexible sourcing in its supply chain management,
diversifying its export market across a greater number of countries,
or by implementing strong research and development activities and
differentiating its products in pursuit of less foreign-exchange risk
exposure.[17]
By putting more effort into researching alternative methods for
production and development, it is possible that a firm may discover
 more ways to produce their outputs locally rather than relying on
export sources that would expose them to the foreign exchange
risk. By paying attention to currency fluctuations around the world,
firms can advantageously relocate their production to other
countries. For this strategy to be effective, the new site must have
lower production costs. There are many factors a firm must consider
before relocating, such as a foreign nation's political and economic
stability.[22]

See also
 Privatized foreign currency risk

References
Further reading
1. Bartram, Söhnke M.; Burns, Natasha; Helwege, Jean (June
2013). "Foreign Currency Exposure and Hedging: Evidence from
Foreign Acquisitions" (PDF). Quarterly Journal of Finance. 3 (2): 1–
20. doi:10.1142/S2010139213500109. SSRN 1116409.
2. Bartram, Söhnke M.; Bodnar, Gordon M. (June 2012). "Crossing the
Lines: The Relation between Exchange Rate Exposure and Stock
Returns in Emerging and Developed Markets" (PDF). Journal of
International Money and Finance. 31 (4): 766–
792. doi:10.1016/[Link].2012.01.011. SSRN 1983215.
3. Bartram, Söhnke M.; Brown, Gregory W.; Minton, Bernadette
(February 2010). "Resolving the Exposure Puzzle: The Many Facets
of Exchange Rate Exposure" (PDF). Journal of Financial
Economics. 95 (2): 148–173. doi:10.1016/[Link].2009.09.002. SS
RN 1429286.
4. Bartram, Söhnke M. (August 2008). "What Lies Beneath: Foreign
Exchange Rate Exposure, Hedging and Cash Flows" (PDF). Journal of
Banking and Finance. 32 (8): 1508–
1521. doi:10.1016/[Link].2007.07.013. SSRN 905087.
5. Bartram, Söhnke M. (December 2007). "Corporate Cash Flow and
Stock Price Exposures to Foreign Exchange Rate Risk" (PDF). Journal
of Corporate Finance. 13 (5): 981–
994. doi:10.1016/[Link].2007.05.002. SSRN 985413.
6. Bartram, Söhnke M.; Bodnar, Gordon M. (September 2007). "The
Foreign Exchange Exposure Puzzle". Managerial
 Finance. 33 (9): 642–666. CiteSeerX [Link].282. do
i:10.1108/03074350710776226. S2CID 154570237. SSRN 891887.
7. Bartram, Söhnke M.; Karolyi, G. Andrew (October 2006). "The
Impact of the Introduction of the Euro on Foreign Exchange Rate
Risk Exposures". Journal of Empirical Finance. 13 (4–5): 519–
549. doi:10.1016/[Link].2006.01.002. SSRN 299641.
8. Bartram, Söhnke M. (June 2004). "Linear and Nonlinear Foreign
Exchange Rate Exposures of German Nonfinancial
Corporations". Journal of International Money and
Finance. 23 (4): 673–699. doi:10.1016/s0261-5606(04)00018-x. SS
RN 327660.
9. Bartram, Söhnke M. (2002). "The Interest Rate Exposure of
Nonfinancial Corporations". European Finance Review. 6 (1): 101–
125. doi:10.1023/a:1015024825914. hdl:10.1023/A:101502482591
4. SSRN 327660.

An intangible asset is an asset that lacks physical substance.

Examples are patents, copyright, franchises, goodwill, trademarks,
and trade names, reputation, R&D, know-how, organizational
capital as well as any form of digital asset such as software and
data. This is in contrast to physical assets (machinery, buildings,
etc.) and financial assets (government securities, etc.).[1]
Intangible assets are usually very difficult to value. Today, a large
part of the corporate economy (in terms of net present value)
consists of intangible assets,[2] reflecting the growth of information
technology (IT) and organizational capital. [3] Specifically, each dollar
of IT has been found to be associated with and increase in firm
market valuation of over $10, compared with an increase of just
over $1 per dollar of investment in other tangible assets.
[4]
Furthermore, firms that both make organizational capital
investments and have a large computer capital stock have
disproportionately higher market valuations.[5]

Definition in accounting
 Intangible assets under the Corrado, Hultan and Sichel
[6]
framework
Intangible assets may be one possible contributor to the disparity
between "company value as per their accounting records", as well
as "company value as per their market capitalization". [7] Considering
this argument, it is important to understand what an intangible
asset truly is in the eyes of an accountant. A number of attempts
have been made to define intangible assets:
 The Australian Accounting Standards Board included examples of
intangible items in its definition of assets in Statement of Accounting
Concepts number 4 (SAC 4), issued in 1995.[8] The statement did not
provide a formal definition of an intangible asset, but did explain
that tangibility was not an essential characteristic of an asset.
 The International Accounting Standards Board standard 38 (IAS 38)[9]
[10]
defines an intangible asset as: "an identifiable non-monetary
asset without physical substance". This definition is in addition to
the standard definition of an asset which requires a past event that
has given rise to a resource that the entity controls and from
which future economic benefits are expected to flow. Thus, the
extra requirement for an intangible asset under IAS 38
is identifiability. This criterion requires that an intangible asset is
separable from the entity or that it arises from a contractual or legal
right.
 The Financial Accounting Standards Board Accounting Standard
Codification 350 (ASC 350) defines an intangible asset as an asset,
other than a financial asset, that lacks physical substance.
The lack of physical substance would therefore seem to be a
defining characteristic of an intangible asset. Both the IASB and
FASB definitions specifically preclude monetary assets in their
definition of an intangible asset. This is necessary in order to avoid
the classification of items such as accounts receivable, derivatives
and cash in the bank as an intangible asset. IAS 38 contains
examples of intangible assets, including: computer software,
copyright and patents.

Financial accounting
General standards
The International Accounting Standards Board (IASB) offers some
guidance (IAS 38) as to how intangible assets should be accounted
for in financial statements. In general, legal intangibles that are
developed internally are not recognized and legal intangibles that
are purchased from third parties are recognized. [11] Wordings are
similar to IAS 9.
Under US GAAP, intangible assets[11][12] are classified into: Purchased
vs. internally created intangibles, and Limited-life vs. indefinite-life
intangibles. [13]
Expense allocation
Intangible assets are typically expensed according to their
respective life expectancy.[11][9] Intangible assets have either an
identifiable or an indefinite useful life. Intangible assets with
identifiable useful lives are amortized on a straight-line basis over
their economic or legal life,[14] whichever is shorter. Examples of
intangible assets with identifiable useful lives are copyrights and
patents. Intangible assets with indefinite useful lives are reassessed
each year for impairment. If an impairment has occurred, then a loss
must be recognized. An impairment loss is determined by
subtracting the asset's fair value from the asset's book/carrying
value. Trademarks and goodwill are examples of intangible assets
with indefinite useful lives. Goodwill has to be tested for impairment
rather than amortized. If impaired, goodwill is reduced and loss is
recognized in the Income statement.
Research and development
Research and development (known also as R&D[11]) is considered to
be an intangible asset (about 16 percent of all intangible assets in
the US),[15] even though most countries treat R&D as current
expenses for both legal and tax purposes.[11] Most countries report
some intangibles in their National Income and Product Accounts
(NIPA).[citation needed] The contribution of intangible assets in long-term
GDP growth has been recognized by economists.[16] Also of note,
acquired "In-Process Research and Development" (IPR&D) is
considered an asset under US GAAP.[17]
IAS 38 requires any project that results in the generation of a
resource to the entity be classified into two phases: a research
phase, and a development phase.
The classification of research and development expenditure can be
highly subjective, and it is important to note that organizations may
have ulterior motives in their classification of research and
development expenditures.[citation needed]
Taxation
For personal income tax purposes, some costs with respect to
intangible assets must be capitalized rather than treated
as deductible expenses. Treasury regulations in the USA generally
require capitalization of costs associated with acquiring, creating, or
enhancing intangible assets.[18] For example, an amount paid to
obtain a trademark must be capitalized. Certain amounts paid to
facilitate these transactions are also capitalized. Some types of
intangible assets are categorized based on whether the asset is
acquired from another party or created by the taxpayer. The
regulations contain many provisions intended to make it easier to
determine when capitalization is required.[19]
Given the growing importance of intangible assets as a source of
economic growth and tax revenue,[16] and because their non-
physical nature makes it easier for taxpayers to engage in tax
strategies such as income-shifting or transfer pricing,[20] tax
authorities and international organizations have been designing
ways to link intangible assets to the place where they were created,
hence defining nexus. Intangibles for corporations
are amortized over a 15-year period, equivalent to 180 months.
Definition of "intangibles" differs from standard accounting, in some
US state governments. These governments may refer to stocks and
bonds as "intangibles".[21]

Value of intangible assets

The most valuable firms, spanning high-tech, pharmaceutical,
automotive and financial services industries, derive their
competitiveness and market value from intangible rather than
physical, that is to say, "tangible" capital. Among companies in
the S&P 500, intangibles including intellectual property account for
90% of the total market value.[22][23]
Intangible assets, though not always visible, play a crucial role in
shaping the success of companies and countries in today's
competitive environment. Investing in these assets helps businesses
attract skilled talent, build customer loyalty, achieve market
success, foster innovation and growth.[24][25] These assets also
contribute to improved economic opportunities, higher-paying jobs,
enhanced product quality. According to WIPO's World IP
Report (2017), intellectual property (IP) and other intangibles
contribute on average twice as much value as tangible capital to
products manufactured and traded along value chains. [26]

The fastest growing types of intangible asset over 2011–

2021 have been software and data, followed by brands, organizational capital, and new financial
products.
Recent estimates from Brand Finance used in the Global Innovation
Index (GII) suggest that the global value of intangibles has been
growing rapidly over the last 25 years to reach around USD 62
trillion in 2023.[27][25]
In 2023, intangible investment accounted for over 16 percent
of GDP in highly intangible-intensive economies like Sweden,
the United States of America (US) and France.[24]A trend showing
intangible investment growing faster than tangible investment at
country level. India was the country that experienced the fastest
growth in intangible investment from 2011 to 2020.[24]
Software and data and brands are the two fastest growing types of
intangible assets, both growing three times faster than R&D
between 2011–2021.[24]
Valuing intangible assets is nevertheless a challenge. There is no
single methodology to value them. Depending on the type of asset
at hand, context and data availability, often a combination of
different approaches is used. In most cases, the value of intangibles
can be estimated considering the future economic benefits
associated with the asset, like projected cash flows. However, for
many intangibles in practice this can be difficult. The cost to
repurchase or recreate an asset or comparison with transactions
involving similar assets are also common methods to determine
value.[25]
 Intangible asset finance, also known as IP finance, is the branch
of finance that uses intangible assets such as intellectual
property (legal intangible) and reputation (competitive intangible) to
gain access to credit. Intangible assets can for example be used
in equity finance. For example, many Swiss companies use equity
finance to support their growth, particularly Venture capital. The
information gathered through interviews indicates that a
supportive IP portfolio, particularly when reinforced by
robust patents, plays a crucial role as a contributing factor. Without
these rights, investors are reluctant to engage with startups.[28]
[29]
In China, pledge-backed lending is the earliest type
of IP financing developed and the fastest growing one. In 2022, the
registered amount of patent and trademark pledged lending in
China reached CNY 486.9 billion, up 57.1 percent year-on-year.
Twenty-eight thousand projects from 26,000 chinese businesses
received loans, both increasing about 65.5 percent year-on-year. [30]
[29]

See also
 Cognitive assets
 Intellectual capital
 Intellectual property
o Brand
o Copyright
o Patent
o Patent valuation
o Trademark
o Trade secret
 Goodwill (accounting)
 Organizational Capital
 Real assets
 Tangible common equity
 Tangible property
 Intangible asset finance

References
External links
 Media related to Intangible assets at Wikimedia Commons