Intangible values in financial accounting and reporting an analysis from the per

Intangible Values in Financial Accounting and Reporting An Analysis from the Perspective of Financial Analysts DISSERTATION of the University of St. Gallen, School of Management, Economics, Law, Social Sciences and International Affairs to obtain the title of Doctor of Philosophy in Management submitted by Stephan Grüber from Germany Approved on the application of Prof. Peter Leibfried and Prof. Dirk Schäfer Dissertation no.

4274 Springer Gabler, Wiesbaden 2014 The University of St. Gallen, School of Management, Economics, Law, Social Sciences and International Affairs hereby consents to the printing of the present dissertation, without hereby expressing any opinion on the views herein expressed. Gallen, May 19, 2014 The President: Prof. Thomas Bieger Intangible Values in Financial Accounting and Reporting Stephan Grüber Intangible Values in Financial Accounting and Reporting An Analysis from the Perspective of Financial Analysts With a Foreword by Prof.

Peter Leibfried Stephan Grüber St. Gallen, Switzerland Dissertation, University of St. Gallen, Switzerland ISBN 978-3-658-06549-2 ISBN 978-3-658-06550-8 (eBook) DOI 10.1007/978-3-658-06550-8 The Deutsche Nationalbibliothek lists this publication in the Deutsche Nationalbibliografie; detailed bibliographic data are available in the Internet at http://dnb. Library of Congress Control Number: 2014944657 Springer Gabler © Springer Fachmedien Wiesbaden 2015 This work is subject to copyright.

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The publisher makes no warranty, express or implied, with respect to the material contained herein. Printed on acid-free paper Springer Gabler is a brand of Springer DE. Springer DE is part of Springer Science+Business Media.de Foreword V FOREWORD Even though intangible values have continuously become significant value drivers of companies in today’s economy, financial accounting and reporting still lacks to properly incorporate and to report such values. Despite the ongoing debate throughout the past decades, a universal solution inside or outside of the traditional information means has not yet been developed.

As a consequence, financial accounting and reporting still provides an incomplete picture of an entity’s true resources and claims. While it is necessary to acknowledge that financial accounting and reporting has inherent limitations and is not supposed to present absolute data, further analysis is required to better understand and to potentially close the information gap. In this thesis, Stephan Grüber focuses on the information use of financial analysts, one of the primary users of IFRSs. He investigates how financial analysts utilize and incorporate information on intangible values in their decision-making processes and whether such information influences decisions.

In addition, the study examines the preferences of financial analysts in regard to accounting for and reporting intangibles in the future. Upon outlining the fundamentals of financial accounting and reporting, Stephan examines the foundations and challenges of intangible values and provides an overview of concepts introduced to improve the accounting and reporting of intangibles. As a next step, he distinguishes various groups of financial analysts and their decision-making objectives, such as buy- and sell-side analysts and equity and fixed income analysts. Chapter 5 represents the main body of this thesis, presenting and discussing two empirical studies.

The first part describes the results of a content analysis of sell-side research reports, offering insights into the information use of sell- side analysts. The second part analyzes the results of a web-based experimental survey with over 1,100 financial analysts, focusing on the importance of information of intangibles for their decision-making. The present analysis offers detailed and comprehensive evidence on the actual information use and preferences of financial analysts, contributing to an improved understanding of the user perspective in financial accounting and reporting, i. what users effectively require with respect to information on intangible values.

Hence, this thesis may not only be valuable to individuals in academia, but is also useful for VI Foreword practitioners and executives focusing on corporate communication. In addition, the results may further provide financial analysts with stimulating self-insight regarding their decision-making. I therefore wish this thesis to be widely read and accepted by a broad audience. Gallen, June 2014 Prof.

Peter Leibfried, CPA, MBA Managing Director of the Institute of Accounting, Control and Auditing (ACA-HSG) at the University of St.Gallen and doctoral advisor of Stephan Grüber Acknowledgements VII ACKNOWLEDGEMENTS The present thesis is the result of my Ph. studies at the University of St. Gallen (HSG) in Switzerland. It was submitted and approved to obtain the title Doctor of Philosophy in Management.

Throughout the course of my studies, there has been much support from many different people and I would like to take this opportunity to thank all of them. First and foremost, I am particularly indebted to my doctoral advisor, Prof. Peter Leibfried, who made this research possible, continuously providing me with guidance and encouragement over many years. His insights and advice significantly helped me to complete this work.

I would further like to express my sincere gratitude to Prof. Dirk Schäfer, who served as co-advisor and supported this project with valuable thoughts and ideas. I have written this thesis while being a full-time employee at KPMG LLP in New York. In order to participate in the Ph.

program in St. Gallen and to draft my thesis I was granted several study leaves. I would therefore like to express my genuine thanks to Dr. Norbert Fischer and Jan Storbeck for their trust and flexibility.

Moreover, I also thank Ingo Zielhoff, who supported me during the final phase of this project. I would also like to specifically thank Dr. Torsten Jaskolski for discussing and exchanging our ideas throughout the years. Special thanks go to Nicholas Jungovic for supporting me and reading the draft of this thesis.

In addition, I further extend my thanks to my family and friends, who have always been there for me despite my limited time. My deepest gratitude goes to my love Sophie for her unbounded patience, understanding and sacrifices along the way, as well as for her motivating and encouraging words during difficult times. Last but not least, I would also like to extend my appreciation and thanks to my parents for their love and unconditional support. This thesis is dedicated to them – it would not have been possible without them.

Zurich, June 2014 Stephan Grüber Brief Contents IX BRIEF CONTENTS 1. Relevance and Motivation of this Study. Purpose and Methodology of this Study. THE FUNDAMENTALS OF FINANCIAL ACCOUNTING AND REPORTING.

Introduction to the Chapter. Justification for the Existence of Financial Accounting and Reporting. Principles of Capital Markets-Oriented Financial Accounting and Reporting. FOUNDATION AND CHALLENGES OF INTANGIBLE VALUES IN FINANCIAL ACCOUNTING AND REPORTING.

Introduction to the Chapter. Characteristics and Attributes of Intangibles. Intangibles and International Financial Reporting Standards. Concepts to Improve Financial Accounting and Reporting of Intangible Values.

Consequences for the Further Analysis. FINANCIAL ANALYSTS AS USERS OF FINANCIAL ACCOUNTING AND REPORTING INFORMATION. Introduction to the Chapter. Fundamentals of Financial Analysts.

The Elements of Financial Analysts’ Decision-Making. Financial Analysts and Information on Intangible Values. Summary and Implications for this Study. EMPIRICAL ANALYSES OF THE PERSPECTIVE OF FINANCIAL ANALYSTS ON INFORMATION ABOUT INTANGIBLES.

Introduction to the Chapter. Content-Analysis of Sell-Side Research Reports. Limitations of the Selected Methodologies. SUMMARY AND CONSEQUENCES FOR REPORTING INTANGIBLE VALUES.

Introduction to the Chapter. Summary and Implications of the Findings. Recommendations for Accounting and Reporting Intangible Values. 411 Table of Contents XI TABLE OF CONTENTS FOREWORD.

VII BRIEF CONTENTS. IX TABLE OF CONTENTS. XVII LIST OF ABBREVIATIONS. XIX LIST OF FIGURES.

XXV LIST OF TABLES. Relevance and Motivation of this Study. Purpose and Methodology of this Study. THE FUNDAMENTALS OF FINANCIAL ACCOUNTING AND REPORTING.

Introduction to the Chapter. Justification for the Existence of Financial Accounting and Reporting. Neoclassical Economic and Finance Theory. The Efficient-Market Hypothesis and Empirical Evidence.

Implications of the Efficient-Market Hypothesis. New Institutional Economics and Principal Agent Theory. Information Asymmetries and Agency Costs. Financial Information as a Solution to the Agency Problem.

Summary and Consequences for the Design of Financial Accounting and Reporting. Principles of Capital Markets-Oriented Financial Accounting and Reporting. Primary User Group and Objectives of International Financial Reporting Standards. Definition and Criteria of Decision-Useful Information .33 XII Table of Contents 3.

FOUNDATION AND CHALLENGES OF INTANGIBLE VALUES IN FINANCIAL ACCOUNTING AND REPORTING. Introduction to the Chapter. Characteristics and Attributes of Intangibles. Definition and Distinction of Intangibles.

Economic Properties of Intangible Values. Classification of Intangible Values. Legal Classification Scheme. Economic Classification Schemes.

Intangibles and International Financial Reporting Standards. Initial Recognition and Measurement of Intangible Assets. Definition of Intangible Assets. Recognition and Measurement of Intangible Assets.

Acquisition as Part of a Business Combination. Additional Requirements for Internally Generated Intangibles. Current Disclosure Requirements for Intangible Assets. Constraints and their Impact.

Decreasing Relevance of IFRSs and It Reasons. Impact of Failing to Provide Information on Intangible Values. Concepts to Improve Financial Accounting and Reporting of Intangible Values. Extended Reporting within the Classic Presentation Formats.

The AASB Discussion Paper. Proposals for an Extended Business Reporting of Intangible Values. Top-Down Methods of an Extended Business Reporting. Bottom-Up Methods of an Extended Business Reporting.

Consequences for the Further Analysis. FINANCIAL ANALYSTS AS USERS OF FINANCIAL ACCOUNTING AND REPORTING INFORMATION. Introduction to the Chapter. Fundamentals of Financial Analysts.

Definition and Responsibilities of Financial Analysts. Classification and Different Types of Financial Analysts. 120 Table of Contents XIII 4. Financial Analysts as Providers of Useful Information.

The Elements of Financial Analysts’ Decision-Making. Equity Financial Analysts. Fixed Income Financial Analysts. Distribution of Information.

Financial Analysts and Information on Intangible Values. Methods Employed by Equity Analysts. Additional Valuation Models. Methods Employed by Fixed Income Analysts.

Decision-Making Concepts. Summary and Implications for this Study. EMPIRICAL ANALYSES OF THE PERSPECTIVE OF FINANCIAL ANALYSTS ON INFORMATION ABOUT INTANGIBLES. Introduction to the Chapter.

Content-Analysis of Sell-Side Research Reports. Purpose of this Content Analysis. General Objectives and Methodology of Content Analysis. Prior Content Analyses in Accounting Research.

Research Gap and Hypotheses for this Study. Research Design of this Study. Description of the Research Object. Sample Selection and Data Collection.

Test Procedures and Constructing the Intangible Score. Applied Statistical Tests. Validity and Reliability of the Content Analysis. Findings and Discussion.

Descriptive Statistics of the Sample. Preferred Valuation Methods. Results for the Total Sample. Human Capital Information Items.

225 XIV Table of Contents 5.