The relevance and reliability of intangible asset values for JSE listed companies: an empirical analysis.

Abstract

Difficulties in measuring intangible assets and applying them within commerce have persisted due to their unique nature. This complexity challenges companies' ability to fairly value and present intangible assets in annual financial statements. International Financial Reporting Standards (IFRS) emphasise the importance of presenting information that is both relevant and reliable; without these qualities, users’ decision-making may be adversely affected. Concerns have been raised over whether intangible asset values reported in financial statements meet these criteria. This study investigates the relevance and reliability of intangible asset values presented by JSElisted companies in South Africa. Using a quantitative, empirical approach, the research analysed secondary data drawn from the annual financial statements of the top 40 JSE-listed companies (by market capitalisation) from 2015 to 2019. Data was analysed through ratio and descriptive statistical analysis (via Excel), and inferential statistics using the Ohlson model (via SPSS and AMOS). Four key objectives guided the study: (1) to determine how intangible assets are measured and valued; (2) to assess whether current valuation techniques (cost or revaluation model per IAS 38) produce relevant and reliable values; (3) to evaluate the significance of intangible assets relative to total assets; and (4) to explore industry-specific differences in intangible asset values. Findings reveal that most JSE-listed companies report intangible assets. The cost model with finite useful lives dominates for other intangible assets, while goodwill is measured applying an indefinite useful life, as required by IFRS. Intangible assets were found to be a significant component of total assets, especially in sectors like tobacco and pharmaceuticals. A statistically significant positive correlation (p = 0.0166) was found between book equity value and market value, highlighting the material role of intangible assets. The study acknowledges limitations, including reliance on JSE data, simplified Ohlson model assumptions, and limited generalisability. Recommendations include revisions to IAS 38 for more relevant valuation methods, the use of industry-specific guidance, and the involvement of valuation experts. Establishing an intangible asset exchange platform is proposed to aid consistent valuation. The study contributes valuable insight for standard setters to enhance intangible asset reporting.