Intangible Assets and Value Relevance of Accounting Information of Listed High-Tech Firms in Nigeria

Abstract

Accounting has been developed overtime in response to the needs of users of financial statements for information relevant to support economic decisions and judgments. During industrial era this prime role of accounting was discharged accordingly. However, in this information era, firms particularly high-technology firms are operating on intangible assets and some of them are not recognized by the accounting system. This is in spite of their critical role in enhancing the value of firms, together with the major role of accounting in providing information relevant for economic decisions. Therefore, there is a great concern that the absence of some of these intangible assets on the balance sheets have led to the deterioration of the quality of accounting information. As evident in the wide gap between market values and book values of equity, and the decline in the value relevance of accounting information, which is usually attributed to the absence of some of intangible assets in the balance sheets. However, it is argued that intangible assets lack reliability due to their accruals nature. Therefore, this study is aimed at assessing the joint incremental value relevance of intangibles assets, brands, not recognized in the current accounting practice. The study also explores the contribution of these assets towards improving the informative quality of accounting information to the users; and assesses the reliability of reporting intangible as assets. Using a sample of nine high-technology firms during the period of seven years (2005-2011), the study employed Ordinary Least Square Regression technique for data analysis using Edward, Bells and Ohlson Price model. We found that, there is joint incremental value relevance of recognizing intangible assets in the statement of financial positions of High-Technology firms in Nigeria at 99% confidence level. That is, recognizing intangible assets, brand in this case in the statement of financial position of listed high-technology firms in Nigeria will increase the quality of accounting information of the firms. Similarly, the study found that intangible assets are value relevance and reliable. We recommend amongst others that, IAS 38 should be broadened to include brand assets.

Keywords: Intangible Assets, Brand Assets, Value Relevance, Accounting Information Quality