An examination of the accounting treatment and value relevance of intangible assets in publicly listed New Zealand companies : a thesis presented in partial fulfilment of the requirements for the degree of Master of Business Studies in Accounting at Massey University

Abstract

With little current public information on intangible asset capitalisation in the New Zealand environment, this study uses companies listed on the New Zealand Stock Exchange to determine current practice. The purpose of the study is to provide a springboard for further research into the intangible area as well as providing an understanding of how New Zealand companies contend with intangible assets, in the light of the controversy that has surrounded the introduction of the exposure draft, ED-87 Accounting for Intangible Assets. The study finds that, apart from goodwill, there are a variety of other intangible assets capitalised by New Zealand listed companies and that the majority of these assets are valued at cost. Capitalisation extends across most industry sectors and company size, although a higher proportion of larger than smaller companies capitalise intangible assets. The contribution to asset value made by capitalisation is quite high for some companies, with intangible assets other than goodwill contributing a greater proportion to asset value than goodwill. Although capitalising intangibles reduces the discrepancy between market and book values of equity, capitalising companies still have higher market-to-book ratios than non-capitalising companies, indicating that the market recognises further uncapitalised intangible value. Whilst companies with higher debt levels have a greater tendency to be capitalising companies, there is no evidence to suggest that companies are capitalising simply because of leverage factors. However, with amortisation periods tending to longer rather than shorter time spans (with many companies not amortising at all), companies may well be using amortisation practices to maintain higher asset levels on the balance sheet. The research supports overseas evidence for the value relevance of capitalised intangible assets and also finds that corporate ownership diversity and size can be influential in that value relevance.