EFRAG’s Mission to Value Intangible Assets
The European Financial Reporting Advisory Group (EFRAG), established in 2001, serves as the European Union’s counterpart to the UK’s Financial Reporting Council (FRC). Tasked with providing technical advice to the European Commission, EFRAG plays a pivotal role in shaping financial reporting standards across Europe.
The Intangible Assets Project
In response to the evolving nature of business assets, EFRAG has initiated a comprehensive project focusing on intangible assets. Recognising that traditional financial statements often fail to capture the value of non-physical assets—such as intellectual property, brand reputation, and technological innovations—this project aims to develop a reporting framework that better reflects the true value of modern enterprises.
Key Objectives
- Enhanced Transparency: By establishing clear guidelines for reporting intangible assets, EFRAG seeks to improve the transparency and comparability of financial statements.
- Relevance to Stakeholders: Accurate reporting of intangible assets provides investors and other stakeholders with a more comprehensive understanding of a company’s value proposition and future prospects.
- Alignment with Global Standards: EFRAG aims to harmonise its guidelines with international reporting standards, facilitating consistency across global markets.
Current Status and Next Steps
As of January 2025, EFRAG is in the research phase of the Intangible Assets project. The organisation is actively engaging with stakeholders to gather insights and feedback, which will inform the development of a Discussion Paper. This paper is expected to outline potential approaches for recognising, measuring, and disclosing intangible assets in financial reports.
Implications for International Businesses
For companies operating within the EU, EFRAG’s focus on intangible assets signifies a forthcoming shift in reporting obligations. Businesses may need to reassess their accounting practices to ensure compliance with new standards once they are implemented. This initiative also presents an opportunity for companies to more accurately showcase the value of their intangible assets, potentially enhancing their attractiveness to investors.
Conclusion
EFRAG’s proactive approach to addressing the complexities of intangible asset reporting underscores its commitment to evolving corporate reporting standards in line with modern business realities. By developing a robust framework for intangible assets, EFRAG aims to provide a more accurate and comprehensive picture of a company’s worth, benefiting both businesses and stakeholders alike.
