How much is your data worth? Don't expect accountants to know

How much is your data worth? Don't expect accountants to know

Summary: Even though firms have always known that data can be a key asset, financial accounts are years behind the times in reflecting its true value.

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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.

Topics: CXO, Big Data, Government, Business Intelligence

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3 comments
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  • If The Loss Of The Data Means The Death Of The Business...

    ...then there is no way to assign a meaningful value to that data, is there?
    ldo17
  • There is a section

    It's intangible assets. Unless there is a real need for the data where selling the end product shows a realized benefit, there is no way to value the asset. Even input costs are are not accurate as there may never be a conversion to realized revenue that can demonstrate the value (e.g. a monkey typing on a keyboard will have costs, but the output is not necessarily of value until the monkey produces a piece of literature that is sold).
    happyharry_z
  • Data Valuation

    We have talked about the dollar value of data that companies accumulate over many years of effort. To further complicate the issue, should generally accepted accounting principles provide for "depreciating" the value of the data as time passes (without constant updating to maintain latest and greatest, data elements change and become invalid).
    theLeaseGuy