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Article information:
To cite this document:
Tony Tollington, (1998),"Brands: the asset definition and recognition test", Journal of Product & Brand Management, Vol. 7
Iss 3 pp. 180 - 192
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http://dx.doi.org/10.1108/10610429810222822
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An executive summary
for managers and
executives can be found
at the end of this article
Introduction
By keeping brands off the balance sheet and dismissing the claims of marketing
concerning the fruits of its labour, the accounting profession succeeds in preserving
its own reputation for integrity, at the expense of the integrity of marketing...
Effective regulation depends on reliable information, and in this accounting is
inevitably constrained by the uncertainties of the world which it represents. But
perhaps it does not illustrate how accounting can misuse the power it gains from
control of financial reporting, when the recognition tests which it applies are too
restrictive (Oldroyd, 1994, p. 44)
Downloaded by Universiti Putra Malaysia At 04:58 02 October 2014 (PT)
A new recognition
boundary
Breaking free
There is nothing particularly new about the first sentence above. It is the
second sentence which offers the opportunity for brand asset recognition to
break free from the existing recognition boundary and, also, its existing
attachment to purchased goodwill. The content of the above brand asset
definition is explored towards the end of this paper.
The structure of this paper
The contents of this paper must inevitably delve into accounting matters in
some depth; however, the issues raised by Oldroyd are of sufficient
180
JOURNAL OF PRODUCT & BRAND MANAGEMENT, VOL. 7 NO. 3 1998 pp. 180-192 MCB UNIVERSITY PRESS, 1061-0421
Perception skills
Setting boundaries
Our perception of the environment around us is conditioned primarily by our
five senses, that is, sight, touch, hearing, smell, taste, which we can use to
confirm that something tangible exists, and also to achieve a degree of
consensus in the use of our perceptional skills. As sentient beings we also
have perceptional skills which are psychological and intangible in nature and
which are typically expressed in terms of intellect, intuition, imagination and
so on. Our perception is also conditioned by the age we live in and our
geographic location. Within this broad context the perception of an asset
could range from the physical (such as river water) to the intangible (such as
brand name awareness) and its existence could be for a purpose (such as a
social purpose) or for no apparent purpose in any given time and space.
Clearly, to define an asset in such broad terms would mean that almost
anything could qualify as an asset.
Boundaries can be established from a variety of perspectives (see Llewellyn,
1994); however, highly pertinent to the accounting professions perception
of its economic environment is the setting of a clearly defined boundary in
respect of the recognition of an asset. This probably involves, first, a
narrowing of the broad context espoused above with the possible effect
that the financial information produced within a specified recognition
boundary may not be fully reflective, in terms of scope and metaphorical
understanding, of the perceived economic reality it is trying to capture and
portray. Secondly, from the information users perspective, the possibility
always exists that what constitutes an asset may change with social,
economic, technological and other circumstance so that the original
recognition boundary, established by the accounting profession, becomes
increasingly unreflective of their perceived view of reality. In the first
instance the argument is that the original recognition boundary-setting
process may be too restrictive and, in the second instance, the argument is
that the boundary may need to be changed to reflect environmental change.
An incomplete view
181
producing wealth then there is a prima facie case for both of them to be
recognised on the balance sheet. Indeed, the Accounting Standards Board
(ASB), the UK accounting regulatory body, has recently acknowledged that
An internally developed intangible asset may be capitalised only if it has a
readily ascertainable market value (ASB, 1997, para 14). However, whilst
a readily ascertainable market value or some other value is essential, asset
recognition is still defined as resulting from a transaction or event and the
two issues, measurement and recognition, should not be confused. This
assertion is based upon a simple premise (and prerequisite): first define and
recognise an asset before measuring its worth. If one does not define and
recognise, for example, a brand asset (above) prior to measurement then any
separate measurement exercise erroneously becomes a means of both
recognition and measurement (see brand values extracted from goodwill
recognition, below). As Wood (1995) put it ...definition should be
attempted because if we do not have some idea of brand phenomenology it is
impossible to develop a reasonable model for valuation.
Separable recognition
182
The GlaxoWellcome plc example shows that anomalies can arise which are
not captured within the existing boundary for the recognition of an asset.
Such examples can be a source of conflict between those who seek to
maintain the status quo and those who advocate change, that is, either
through a creative manipulation of the existing recognition boundary (such
as extracting brand assets from goodwill) or by redefining it (such as
creating a new definition of an asset). In this latter respect the situation may
be similar to Kuhns (1970) model of revolution where a crisis stage is
reached and the dominant paradigm is overthrown by a new reigning
paradigm (see also Gambling, 1987).
183
An economic perception
of reality
184
Three categories
185
A question of priorities
Context specific
186
asset (in the introduction) to the definition of a trade mark (above) and
observe the similarities between them. Also note that the authors aim is to
provide a basis, in this case a legal basis, for recognition of brand assets
which the accounting profession has already shown it is prepared to accept
on the balance sheet (Appendix 2). The approach is one step at a time: first,
break the link between brand assets and the transaction-based recognition of
purchased goodwill by establishing separable legal grounds for a brand asset
through a trade mark, and subsequently, strengthen the process of
recognition through further research into the more abstract brand attributes
such brand loyalty, brand awareness, perceived quality.
Concept of separability
A change in the
recognition boundary
Conclusion
The introductory quotation from Oldroyd says that accounting is inevitably
constrained by the uncertainties of the world which it represents. According
to the ASB (1995) uncertainty is overcome by better quantity and quality of
evidence over an assets existence, nature and measurement (para 4.38). No
one doubts that brand assets exist; however, the evidence required by the
accounting profession for the recognition of internally created assets appears
to be insufficient for their inclusion on the balance sheet. This paper goes
some way towards rectifying this situation through a proposal to change the
existing asset recognition boundary to allow the use of legal sources of
evidence in addition to those established, often contractually, through a
transaction or event and, also, through the provision of a new brand asset
187
Representation of truth
Rorty (1981) refers to research which helps society to break free from
outworn vocabularies and attitudes as edifying research. It is a stance,
adopted in this paper, which sees truth as what is better for us to believe
rather than as the accurate representation of reality since, it can be argued
that the latter is, in part, based upon socially constructed beliefs anyway (see
Hines, 1988). According to Hines (1991), to knowingly speak what may
appear to be an abnormal discourse requires confidence in ones personal
vision and the courage to communicate that vision. This is, in part, because
rationalism and materialism prioritize the intellect and miltitate against the
living and experience of other human potentials such as emotion, intuition,
imagination, spirituality and aesthetics. The personal vision presented in
this paper is based on the view that brand assets and other intangibles either
create or help create wealth or they do not and, if the former prevails, then,
in principle, they should all be separately capitalised.
To selectively capitalise brands simply because they are recognised on a
rule-driven transaction or event basis is to risk letting the form dominate the
substance; the substance being an economic environment where intangible
assets are perceived to be increasingly important to economic survival and
where, according to Quah (1997), success comes not from having built the
largest factory, the biggest oil supertanker, or the longest assembly line. In a
weightless economy, success comes from knowing how to locate and
juxtapose critical pieces of information, how to organise understanding into
forms that others will demand. Oldroyd (1994) questions whether a change
of accounting orientation towards brands is possible. This paper presents
one idea towards changing accounting orientation in favour of the
widespread recognition of brand assets on the balance sheet, whether
purchased or not, and independently of goodwill.
References
Aaker, D.A. (1991), Managing Brand Equity, The Free Press, New York, NY, p. 15.
Arnold, J. et al. (1992), Goodwill and Other Intangibles, The Institute of Chartered
Accountants Research Board, pp. 1-93.
Arthur Andersen & Co. (1992), The Valuation of Intangible Assets, Special Report, Business
International Ltd, January, p. 254.
ASB (1995), Financial Reporting Exposure Draft: Statement of Principles for Financial
Reporting, Accounting Standards Board, November, p. 53.
ASB (1996), Financial Reporting Exposure Draft 12: Goodwill and Intangible Assets,
Accounting Standards Board, June, pp. 1-76.
ASB (1997), Financial Reporting Standard 10: Goodwill and Intangible Assets, Accounting
Standards Board, December, pp. 1-77.
ASC (1989), Statement of Standard Accounting Practice No 22 : Accounting for Goodwill,
Accounting Standards Committee, July, pp. 1-16.
Bainbridge, D.(1994), Intellectual Property, (2nd ed.), Pitman Publishing, p. 403.
Barwise, P., Higson, C., Likierman, A. and Marsh, P. (1989), Accounting for Brands, The
Institute of Chartered Accountants in England and Wales, London Business School,
pp. 1-84.
Bennett, P.D. (1988), Dictionary of Marketing Terms, American Marketing Association,
Chicago, IL.
Catlett, G.R. and Olsen, N.O. (1968), Accounting for Goodwill, AICPA Accounting Research
Study No. 10, AICPA, New York, NY, pp. 1-179.
188
189
Company
Capitalised brands
(m)
cb/ta%
34
35
18
Table AI. Examples of companies that include brand assets on their 1996
published balance sheets
Appendix 3: Definitions of brands and brand equity
A brand is a name, term, sign, symbol or design, or combination of them which is intended to
identify the goods or services of one seller to differentiate them from those of competitors.
(Kotler, 1980)
...a name, term, design, symbol, or any other feature that identifies one sellers good or
service as distinct from those of other sellers. A brand may identify one item, a family of
items, or all items of that seller.
(Bennett, 1988)
A brand is a recognised name associated with a product, which projects an image to the
consumer such that he or she rates the product associated with the brand higher than other
comparable products.
(Mainz and Mullen, 1989)
Brand equity is a set of brand assets and liabilities, linked to a brand, its name and symbol,
that add to or subtract from the value provided by a product or service to a firm and/or to that
firms customers. For assets or liabilities to underlie brand equity they must be linked to the
name and/or symbol of the brand...The brand assets and liabilities on which brand equity is
based will differ from context to context. However, they can be usefully grouped into five
categories: 1. Brand loyalty, 2. Name awareness, 3. Perceived quality, 4. Brand associations in
addition to perceived quality, 5. Other proprietary brand assets patents, trademarks, channel
relationships etc.
(Aaker, 1991)
Appendix 4: The recognition of goodwill
In determining whether goodwill has any economic impact at all it is probably necessary to
avoid the operating terms of SSAP22 and APB No.16 (below) and define it in terms of its
nature, otherwise one cannot be sure that the wealth it may create is actually derived from it
rather than from one or more, as yet, unidentified subsumed assets. It has been variously
described in terms of customer loyalty, strategic locations, superior management, brands and
so on (see Nelson (1953), Catlett and Olsen (1968), Tearney (1973), Falk and Gordon (1977)),
however, in accounting terms, it is simply a transaction-based arithmetic difference created by
the application of a rule:
Goodwill is the difference between the value of a business as a whole and the aggregate of the
fair values of its separable net assets(ASC, 1989) or
A difference between the cost of an acquired company and the sum of the fair values of
tangible and identifiable intangible assets less liabilities is recorded as goodwill (APB No.
16).
190
191
The debate about brands as assets will continue since most managers accept
that a brand cannot be seen in any other way than as an asset. Tollington
expresses the view that brands can be seen as independent of the product or
service to which they were originally attached. This view requires a change
in thinking not just by accountants but by marketers themselves. The
ability to separate a brand from the products carrying that brand is by no
means universally accepted by marketers let alone people in other
management disciplines.
If the marketing profession is serious about shifting the view of brands and
brand investment, there is a need for concerted action. And we need
consistency in our view of brands and a willingness to accept that the
arguments of accountants are not merely spiteful but represent a considered
view of assets and asset valuation. The accountancy position may face
criticism from the view of logic but without doubt the accounting standards
currently in place do represent a consistent view of valuing companies and
their assets.
Finally, we must accept that the brand valuation issue is just one of the
challenges facing those developing accounting standards. Not only are there
international differences in accounting practice but the treatment of other
assets buildings, intellectual property, customer databases also needs
attention given inconsistencies in the treatment of these assets by firms.
Tollington shows marketers the way forward by couching his arguments in
the terminology of accountancy and finance research rather than trying to
convert finance officers to marketing terminology and attitude.
(A prcis of the article Brands: the asset definition and recognition test.
Supplied by Marketing Consultants for MCB University Press.)
192
1. Chris Pentz, Charlene Gerber. 2013. The influence of selected senses on consumer experience: A brandy case. Acta Commercii
13:1. . [CrossRef]
2. YenChun Jim Wu. 2009. Renaming effect of brand value: stateowned enterprises. Management Decision 47:10, 1555-1581.
[Abstract] [Full Text] [PDF]
3. Tony Tollington. 2001. UK Brand Asset Recognition Beyond Transactions or Events. Long Range Planning 34:4, 463-487.
[CrossRef]
4. Tony Tollington. 2000. The cognitive assumptions underpinning the accounting recognition of assets. Management Decision
38:2, 89-98. [Abstract] [Full Text] [PDF]
5. Tony Tollington. 1999. The brand accounting sideshow. Journal of Product & Brand Management 8:3, 204-218. [Abstract]
[Full Text] [PDF]
6. Tony Tollington. 1998. Separating the brand asset from the goodwill asset. Journal of Product & Brand Management 7:4,
291-304. [Abstract] [Full Text] [PDF]