Soumitra Dutta of French business school Insead thinks so, as reported in this story on CFO.com:
Insead has developed a “novel technique” to value software assets. Using conjoint analysis — “a time-tested and widely used robust technique in marketing science,” Dutta claims — companies can place a value on software by identifying its individual attributes, compiling trade-off data from employee surveys and crunching the resulting numbers using “a complex form of analysis of variance.”
The report produced by Dutta asserts that companies are therefore “under-reporting” their software assets, which is a troubling leap to make. When it comes to financial reporting, we need to be conservative about the value of an asset like software and stick to objective data like cost and a reasonable amortization rate. Comparability and consistency as twin aims of any accounting framework are thus maintained.
There is great intangible value tied up in software — as well as the users of the software — but that’s not enough to warrant writing up software assets en masse.
The report also argues companies are not leveraging these assets optimally, and cites the company’s brand value and patent portfolio as examples of more optimally levered intangible assets. But if this is the case, they shouldn’t be arguing that accounting treatment is to blame. Other intangibles are not written up using the types of analysis the report urges either. There are more important objectives to financial reporting.
What do you think? Would valuing software assets like this improve or distort financial reporting?