Disclosure of intellectual capital in financial reports: case of Latvia

Keywords: intellectual capital, financial reporting, Latvia, survey

Abstract

Research background: Intellectual capital and its elements, such as reputation, customer relationships, staff competence, are an essential part of a company’s value. However, the issues regarding its recording in company’s accounting books have not been solved. Proper disclosure of an intellectual capital in financial re-ports will increase the transparency of company-related information, thus improving the quality of reporting.

Purpose of the article: The paper aims to investigate the opportunities of intellectual capital disclosure in company’s financial reports from the viewpoint of accounting experts.

Methods: Financial and accounting managers, board members of accounting services, companies and auditors were surveyed, using the authors’ developed questionnaire. The statements regarding the awareness of the intellectual capital and its disclosure-related questions, as well as a respondent profile section were offered to respondents for evaluation. Data was processed in SPSS, applying the method of frequency analysis and categorical Principal Component Analysis (CATPCA).

Findings & Value added: The research results indicate the problem of inconsistency between understanding of intellectual capital and its elements in management theory and accounting practice. The existing accounting standards and regulations do not allow for making a full disclosure of all companies’ assets. Thus, a reliable information about company’s value is not available for shareholders, executives and other stakeholders. The authors suggest using a non-financial reporting practice to reflect the real situation in all companies, irrespective to their status within the meaning of the European Directive on non-financial information disclosure. Current research results will be used for future research and elaboration of recommendations to companies for better disclosure of their assets. Besides, there is a potential for future studies regarding non-financial reporting practice and disclosure of intellectual capital in neighboring countries. 

Downloads

Download data is not yet available.

References

Abeyskera, I. (2011). The relation of intellectual capital disclosure strategies and market value in two political settings. Journal of Intellectual Capital, 12(2). doi: 10.1108/14691931111123449.
Abdullah, F., Suhaimi, R., Sabah, G., & Hamali, J. (2010). Bank service quality (BSQ) index. International Journal of Quality & Reliability Management, 28(5). doi: 10.1108/02656711111132571.
Abhayawansa, S., & Guthrie, J. (2012). Intellectual capital information and stock recommendations: impression management? Journal of Intellectual Capital, 13(3). doi: 10.1108/14691931211248945.
Beattie, V., & Smith, S.J. (2013). Value creation and business models: refocusing the intellectual capital debate. British Accounting Review, 45. doi: 10.1016/j. bar.2013.06.001.
Branswijck, D., & Everaert, P. (2012). Intellectual capital disclosure commitment: myth or reality? Journal of Intellectual Capital, 13(1). doi: 10.1108/ 14691931211196204.
Canibano, L., Sánchez, M. P., García-Ayuso, M., & Chaminade, C. (2002). Guidelines for managing and reporting on intangibles: intellectual capital report. Retrieved from http://www.pnbukh.com/files/pdf_filer/ MERITUM_Guidelies.pdf (10.02.2019).
Cortina, J. M. (1993). What is coefficient alpha? An examination of theory and applications. Journal of applied psychology, 78(1). doi: 10.1037/0021-9010. 78.1.98.
IFRS (2002). International accounting standards (IAS 38 Intangible Assets). Retrieved from: http://www.ifrs.org/IFRSs/Pages/IFRS.aspx (2.02.2018).
Fabrigar L. R., Wegener D. T., MacCallum R. C., & Strahan E. J. (1999). Evaluating the use of exploratory factor analysis in psychological research. Psychological Methods, 4. doi: 10.1037/1082-989X.4.3.272.
Federal Ministry of Economics and Labour (2004). Intellectual capital statement –Made in Germany – Guideline. Harzdruckerei, Wernickerode.
Haji, A., & Ghazali, M. (2012). Intellectual capital disclosure trends: some Malaysian evidence. Journal of Intellectual Capital, 13(3). doi: 10.1108/146919312 11248927.
Holland, J., Henningsson, J., Johanson, U., Koga, C., & Sakakibara, S. (2012). Use of IC information in Japanese financial firms. Journal of Intellectual Capital, 13(4). doi: 10.1108/14691931211276133.
Jordão, R. V. D. & Novas, J. C. (2017). Knowledge management and intellectual capital in networks of small and medium-sized enterprises. Journal of Intellectual Capital, 18(3). doi: 10.1108/jic-11-2016-0120.
Jurczak, J. (2008). Intellectual capital measurement methods. Economics and Organization of Enterprise, 1(1). doi: 10.2478/v10061-008-0005-y.
Kianto, A., Andreeva, T., & Pavlov, J. (2013). The impact of intellectual capital management on company competitiveness and financial performance. Knowledge Management Research and Practice, 11(2). doi: 101057/kmrp. 2013.9.
Linting, M., Meulman, J. J., Groenen, P. J., & van der Koojj, A. J. (2007). Nonlinear principal components analysis: introduction and application. Psychological methods, 12(3). doi: 10.1037/1082-989X.12.3.336.
Lentjušenkova, O., Stankeviča, I., & Lapiņa, I. (2018). The Concept of intellectual capital in legislation: the case of Latvia. In Proceedings of the 10th international scientific conference „Business and Management 2018”, 3-4 May, 2018, Vilnius, Lithuania. doi: http://dx.doi.org/10.2846/bm.2018.25.
Lentjusenkova, O., Titko, J., & Lapina, I. (2016). Intellectual capital investments: analysis of the predicted outcomes. In Proceedings of the 21st international scientific conference "Economics and Management (ICEM-2016), May 19-20, 2016, Brno, Czech Republic.
Lentjušenkova, O., & Lapiņa, I. (2016). The transformation of the organization’s intellectual capital: from resource to capital. Journal of Intellectual Capital, 17(4). doi: 10.1108/jic-03-2016-0031.
Lentjušenkova, O., & Lapiņa, I. (2014). Intellectual capital investments influence on entrepreneurship and economics performance. In Proceedings of the 8th international scientific conference “Business and Management”, 15–16 May, 2014, Vilnius, Lithuania. doi: 10.3846/bm.2014.013.
Manisera, M., van der Kooij, A. J., & Dusseldorp, E. (2010). Identifying the component structure of satisfaction scales by nonlinear principal components analysis. Quality Technology & Quantitative Management, 7(2). doi: 10.1080/16843703.2010.11673222.
Manfredi, P., Manisera, M., & Dabrassi, F. (2009). The alexithymia construct: a reading based on categorical principal component analysis. Psychofenia: Ricerca ed Analisi Psicologica, 21.
Mertins, K., Alwert, K., & Will, M. (2006). Measuring intellectual capital in European SME. In Proceedings of 6th international conference on knowledge management (I-KNOW ´06), September 6-8, 2006, Graz, Austria.
Mertins, K., Wang, W., & Will, M. (2009). InCaS: intellectual capital management in European SME – its strategic relevance and the importance of its certification. Electronic Journal of Knowledge Management, 7(1).
Mouritsen, J. (2003). Intellectual capital and the capital market: the circulability of intellectual capital. Accounting, Auditing & Accountability Journal, 16(10). doi: 10.1108/09513570310464246.
Mouritsen, J., Larsen, H. T., & Bukh, P. N. (2001a). Valuing the future intellectual capital and supplements at Scandia. Accounting, Auditing & Accountability Journal, 14(4). doi: 10.1108/09513570110403434.
Mouritsen, J., Larsen, H. T., & Bukh, P. N. (2001b). Intellectual capital and the "capable firm: narrating, visualising and numbering for managing knowledge. Accounting Organizations and Society, 26(7/8). doi: 10.1016/s0361-3682(01)00022-8.
Sumita, T. (2008). Intellectual assets based management for innovation. Journal of Intellectual Capital, 9(2). doi: 10.1108/14691930810870300.
Petty, R., & Guthrie, J. (2000). Intellectual capital literature review: measurement, reporting and management. Journal of Intellectual Capital, 1(2). doi: 10.1108/14691930010348731.
Williams, B., Onsman, A., & Brown, T. (2010). Exploratory factor analysis: a five-step guide for novices. Australasian Journal of Paramedicine, 8(3). doi: 10.33151/ajp.8.3.93.
Zéghal, D., & Maaloul, A (2001). The accounting treatment of intangibles – a critical review of the literature. Accounting Forum, 35. doi: 10.1016/j.accfor. 2011.04.003.
Published
2019-06-30
How to Cite
Lentjushenkova, O., Zarina, V., & Titko, J. (2019). Disclosure of intellectual capital in financial reports: case of Latvia. Oeconomia Copernicana, 10(2), 341-357. https://doi.org/10.24136/oc.2019.017
Section
Articles