Businesses — and even whole national economies — are being seriously undervalued because existing accounting methods make it hard to record the value of data on balance sheets.
Companies rely increasingly on data to make money and try to classify it for compliance. But they are being hampered by systems not designed to cope with the concept of valuing software and information services, according to a report from the Centre for Economics and Business Research and business-intelligence firm SAS.
"Existing international financial accounting frameworks struggle to incorporate these assets, leading to growing discrepancies between market and book values of firms," the reports' authors wrote.
Current accounting methods do allow data to be assigned a value in balance sheets but only when it is expected to produce future benefits that can be accurately estimated. This shortcoming also affects the figures for national economies.
"GDP measures were designed for an economy in which goods and assets are largely physical, and suggest that the information sector makes up the same share of the US economy as it did 25 years ago — about four percent," the report said.
"The same argument can be made in the UK, where the proportion of gross value added accounted for by information and communications industries has remained at six percent since 2002, despite continuous technological progress."
Putting a value on data is extremely difficult because it depends on its intrinsic characteristics and the environment in which a business uses it, the report said. Other obstacles include assessing accurately the cost of collection, depreciation and the life of the data, and its additive value, whereby it becomes more valuable as more is collected.
Accounting for data assets
Despite these issues, organisations and governments need to find more accurate ways of accounting for data assets.
"Without this innovation, decisions at both corporate and national level will be made on the basis of incomplete information, magnifying the risk of misallocation of resources and consequent economic inefficiency," the report said.
It backs the idea of a shift to integrated reporting, as recommended by the International Integrated Reporting Council, which argues that current accounting frameworks overemphasise short-term financial information and neglect sources of long-term value creation.
"We suggest an integrated reporting framework, providing investors and other interested parties with a more comprehensive view of a company's value by dealing with the factors and risks that can boost or depress the value of data," the report said.