Intangible assets such as patents, trademarks or software are becoming increasingly important in today’s economy. They shape the company’s value and open up new strategic and financial opportunities. Young companies in particular are given new opportunities to raise capital and convince investors.
What are intangible assets?
Intangible assets, also called “intangible assets”, are identifiable, non-monetary assets without physical substance according to International Accounting Standard (IAS) 38.8. Typical examples include patents, trademarks, software or licenses. These values are of great economic importance for many companies, even though they are not materially tangible. In the balance sheet they are allocated to fixed assets and are generally used over several years. Armin Müller describes intangible assets in the chapter “Intangible Assets – Meaning, Limitation and Interrelationships” in the 2021 book “Management of Intangible Assets” by Springer Verlag as crucial for the competitiveness of modern companies and emphasizes that they play a dominant role in knowledge-based economies.
Accounting principles and legal treatment
In Germany, the Commercial Code (HGB) regulates the treatment of intangible assets. According to Section 266 of the German Commercial Code (HGB), this includes, among other things, goodwill, rights and advance payments made. The prerequisite for capitalization in the balance sheet is that there is an asset advantage, the good is marketable and can be independently valued. Intangible assets that are assigned to current assets must be accounted for (Section 246 Para. 1 HGB). The following applies to fixed assets: intangible assets acquired for payment must be capitalized (Section 5 Para. 2 EStG). With the HGB reform through the Accounting Law Modernization Act (BilMoG), a right to capitalize self-created intangible assets was also introduced (Section 248 Para. 2 HGB). This option allows startups in particular to include self-developed brands or software in their balance sheet under certain conditions. However, this is associated with a distribution ban, which means that part of the profit may not be distributed to the shareholders as long as these assets are accounted for.
International accounting according to IAS/IFRS
At the international level, the IAS 38 standard governs the accounting of intangible assets. In addition to identifiability, IAS 38 also requires future economic benefit and reliable valuation as a prerequisite for capitalization. The distinction between the research and development phase is particularly relevant for young companies: While research costs may not be capitalized, development costs can be included in the balance sheet under certain conditions. However, these requirements are strict and in practice are not fully met by many startups, as Prof. Dr. Heinz Kußmaul explains in an article by Haufe. In the case of business combinations, IAS 38 stipulates that all identifiable intangible assets must be recognized in the balance sheet at fair value. In addition, the HGB requires a detailed list of intangible assets in the notes to the balance sheet in Section 284 Paragraph 3, which creates transparency for investors and banks.
Management and strategic importance
Intangible assets are not only important for accounting purposes, but also have a high strategic relevance. Müller emphasizes that intangible assets such as customer relationships, brand awareness or company-specific know-how are crucial factors for long-term success. In modern, knowledge-based markets, they are often more important than traditional tangible assets. Müller sees strategic management, for example through the implementation of a balanced scorecard, as an effective approach to systematically control, measure and make intangible assets usable for the company.
Financing based on intellectual property
Intangible assets are an often unused source of financing, especially for startups. The World Intellectual Property Organization (WIPO) highlights that intellectual property is increasingly being used as security for loans. According to WIPO, IP financing helps innovative companies gain access to capital, especially when traditional loan collateral such as real estate is missing. The guide “Hands-on IP Finance: Securing Loans with Your IP Assets” published by WIPO shows in practice how startups can evaluate their patents, trademarks or copyrights and structure them as loan collateral in order to strengthen their negotiating position with banks.
International developments make it clear that government initiatives are also increasingly supporting this type of financing. One example is Singapore, where special innovation funds have been created to promote IP-based loans and facilitate the valuation of intangible assets, as reported by WIPO. For startups, the targeted use of their own intellectual property as a financing instrument can be a decisive competitive advantage. While it is often difficult for young companies to offer traditional security, patents or software solutions can convince as valuable assets if they are professionally documented, evaluated and legally protected.
Editorial team finanzen.net