Sunday, August 07, 2005

Falling foul of brand valuation

Earlier this month The Financial Reporting Review Panel published its first report on the results of its pro-active approach to company accounts for review. The report covers the fifteen-month period to 31 March 2005.

Not surprisingly it had problems with reporting on intangibles. John Flynn (left), Vice Chairman of CIM is making interesting comments about brands and thier values and the advent of the Relationship Value Model will give them, and some major corporations some additional ideas for the future.

This is quite important. Some Brands are said to be worth a lot of money. Tesco is said to be worth £4.8 billion as a brand.

Goodwill and intangible assets

The accounts of a number of companies failed to satisfy the disclosure requirements of FRS 10 ‘Goodwill and intangible assets’ which contains a rebuttable presumption that the useful economic life of purchased goodwill or an intangible asset is limited to a period of 20 years or less.

The standard requires the grounds for rebutting the presumption to be disclosed. In a number of enquiries, which included FTSE 100 companies, the Panel found that no such disclosures were provided. The reasons for the failure to include a reasoned explanation for the policy varied from case to case, but included the proposition that the durability of the assets, particularly brands, was well known and understood without further comment and that a number of industry leaders adopted a similar approach to the detailed reporting requirements.

If we start off with Brands we find that most brand valuation and most of the literature is misplaced because it does not factor in the value of relationships. If the organisation does not foster relationships between its brands and consumers, the brand must suffer. And, if this is not enough, the requirement to report on stakeholder relations (and a stakeholder in this context is any 'user' of the annual report) is also up for a major revision.

One recalls that it was not the author who suggested that relationships have value. It was the then Secretary of State, Patricia Hewitt MP and I did report on her assertion at the time.

There are a number of disenting views about brand valuation. John Flynne, Vice Chairman of the Chartered Institute of Marketing (CIM) says that ‘Brands come second: Brains not Brands are an organisation’s marketing asset

And, one might add, this is only true if the brains have relationships with other brains. The relationship Value Model would seem to be needed to make his latest hypotisis work.

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