From recognition to use: How sell-side equity analysts evaluate accounting information on intangible assets

Sammanfattning

The growing economic importance of intangible resources has intensified debate over whether existing accounting standards, particularly IAS 38, provide decision-useful information to capital market users. While much of this debate concerns whether more intangible assets should be recognised in the balance sheet, less is known about how sophisticated users actually interpret and incorporate intangible-related accounting information in valuation practice. This study addresses this issue by examining how Nordic sell-side equity analysts evaluate and use intangible-related accounting information, and what their practices reveal about the conditions under which such information becomes decision-useful. Based on eight semi-structured interviews, the study draws on Durocher and Fortin’s (2021) framework of users’ institutional logic to analyse the dimensions through which analysts evaluate the decision-usefulness of intangible-related accounting information. The findings show that analysts do not primarily use intangible-related accounting information as formally reported balance sheet amounts. Instead, they translate such information into forward-looking valuation categories, including cash flow, reinvestment needs, return on capital, acquisition capacity, and management credibility. Recognised intangible assets are rarely analysed as standalone values, while reported accounting numbers are often adjusted before being incorporated into valuation work, particularly in relation to amortisation of acquired intangible assets and goodwill. The findings further show that concerns about management credibility and reporting incentives have a pervasive effect on analysts’ assessments, shaping how they evaluate the decision-usefulness of intangible-related accounting information. The study contributes to the literature on intangible asset reporting in two ways. First, it extends Durocher and Fortin’s (2021) framework by showing that decision-usefulness is shaped by the interaction between dimensions rather than by any single dimension in isolation. Second, it shows that the central issue is not only a recognition gap, but a translation gap between information produced through accounting standards and the form in which that information becomes usable in analysts’ valuation work. This suggests that reforms to IAS 38 should not be evaluated solely in terms of broader recognition, but also in terms of whether intangible-related accounting information can be interpreted, trusted, compared, adjusted, and incorporated into users’ decision processes.