Accounting for brands: Untouchable intangibles

COCA-COLA is worth $79.2 billion, according to Interbrand, a consultant. That does not seem excessive for the brand responsible for making Santa Claus look so jolly. But neither that number nor anything close to it appears on the company’s balance-sheet. “Trademarks with indefinite lives” (ie, brands) are worth just $6.7 billion, say the company’s accounts.The reason is that both American and international accounting rules prohibit companies from recognising brands and many other “intangible” assets (such as customer lists) if they have created them themselves. Some marketers would like to change that. Roger Sinclair, who advises the MASB, an American body that sets marketing standards, points out that rules are inconsistent. The value of a brand—invisible when internally generated—is revealed when another company buys it.That is because a different rule applies to acquisitions. In 2005 Procter & Gamble, a consumer-goods company, paid $57 billion for the Gillette razor company. The brand alone, P&G reckoned, was worth $24 billion. Oddly, Gillette’s value can now only go down. P&G must test it for “impairment” but cannot acknowledge any increase, though Interbrand says Gillette’s value rose 1% last year.Investors have a right to know how much brands are worth because so much of a firm’s future depends on them, Mr Sinclair argues. The conflicting standards treat…

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