Title:
VALUING INTANGIBLE ASSETS AND FINANCIAL REPORTING

Authors:
Jeffrey E. Jarrett, Ph.D.

Abstract:
Intangible Assets, Intellectual Property and Estimating Cash Flow and Rates of Return are concerned with the inability and inaccuracy of earnings and financial forecasts. Financial reporting is the major source of data utilized by economic forecasts, accountants and financial managers to predict future cash flow and earnings (whether per share or in aggregate). However, the records and studies of analyst forecasts have produced often dismal performance. Previous studies focused on historical analysis of past earnings forecast methodology or on generating evidence that accrual accounting justifies better forecasting performance. Objections to these areas of study come in several forms. Justifying accrual accounting by concluding that they perform well is not appropriate when important factors going into earnings forecasts are absent from the methods utilized. Also, the financial reporting of intangible assets is often misleading or is not reported at all. Economic forecasters know that if the reporting of assets that greatly affect cash flow and in turn earnings forecasters is a serious source of error in forecasting. Using sophisticated models for forecasting with error adjustments may improve forecast accuracy as shown previously by others, the absence of studying intangible assets will still produce inaccurate results. Estimation theory will aid us in solving this problem and will induce accountants too properly report finding about Intellectual Property Rights and similar assets.