A Normative Approach to Valuation, Value Enhancement and Financial Statement Reporting of Intellectual Capital

Michael Soa, Janek Ratnatungab

a United International College, Beijing Normal University and Hong Kong Baptist University, China

b Institute of Certified Management Accountants, Australia


Intellectual capital (IC) is increasingly seen as an integral part of a firm’s value-creating processes and an essential strategic asset in creating corporate sustainable competitive advantage (Bukh, 2003; Chen, Cheng & Hwang, 2005). Nevertheless, reporting on IC is currently inconsistent, incomparable, and incomplete because of a lack of consistent guidance. This paper presents a normative IC valuation and reporting framework based on the Capability Economic Value of Intangible and Tangible Assets (CEVITATM) approach (Ratnatunga, Gray & Balachandran, 2004). The proposed framework enables the application of CEVITATM to the valuation of intellectual capital capability and provides a theoretical foundation for future empirical studies in relation to IC valuation and reporting.

Keywords: Capability Economic Value of Intangible and Tangible Assets; Intellectual Capital; Valuation