Andrew Watson
Taxonomy of Intangibles
– Rethinking Capital
After a couple of weeks thinking about consumer issues, we are moving towards a more institutional discussion next Tuesday at the Pension PlayPen.
Join this meeting here
We are delighted that Andrew Watson, will be presenting his view on the taxonomy of intangibles and the interactions and flows between them. Andrew is the founder of Rethinking Capital and one of the inventors of Accounting for Reality–described by former KPMG forensic accountant as
‘the first major accounting update in at least 500 years’.
Rethinking Capital has found the elusive way using back to basics double entry, technical accounting and existing IASB Standards to create the incentives to enable and accelerate the transition, adaptation and resilience—to make them very profitable and materially increase returns and improve credit rating—by simply recognising intangibles that exist in reality but aren’t recognised in accounting practice.
The session will run through a case study and an analysis of BP to illustrate.
Rethinking Capital secured a decision from the IASB on one Standard, IAS37, that’s the cornerstone of the Accounting for Reality. And PRI support for IAS37 disclosure in the 2024 SGM.
Please view David Atkin’s AssetTV interview on 18th September in which he called for better information on the balance sheet which was a major signal of a ‘reflection point and problem that Accounting for Reality solves.
Andrew founded Rethinking Capital in 2016 and previous roles include Limeon, ipVA and EY. He graduated with a law degree from Newcastle University in 1988.
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That unnamed KPMG accountant is presumably referring to Summa de arithmetica, geometria, proportioni et proportionalita (Summary of arithmetic, geometry, proportions and proportionality), a book on mathematics written by Luca Pacioli and first published in 1494.
It contains a comprehensive summary of Renaissance mathematics, including practical arithmetic, basic algebra, basic geometry and accounting, written for use as a textbook and reference work.
But I would argue there have been many better books since, including the late Maurice Moonitz and Robert Sprouse’s 1962 publication, A Tentative Set of Broad Accounting Principles for Business Enterprises, which helped shape the conceptual framework of accounting by prescribing ideal standards and guidelines for financial reporting based on principles like the need for decision usefulness and a public interest orientation. Moonitz used expressions like “normative accounting” decades before Andrew seems to have re-discovered/reclaimed it.
Other examples include John
Canning’s The Economics of Accountancy, Wlilliam Paton’s Accounting Theory,
Henry Sweeney’s Stablized Accounting, Kenneth MacNeal’s Truth in Accounting, all from before WW2, and, contemporaries of Moonitz & Sprouse, Edgar Edwards and Philip Bell’s The Theory and Measurement of Business Income.
I might argue that Mr Watson may be focusing on the wrong broken part of the bean counters’ model, if he’s simply trying to bridge the gap between market capitalisations (or unicorn valuations) and balance sheet net assets.
Just as actuaries have abused the balance sheets of DB pensions by focusing on measuring deficits and increasing contributions, instead of getting to grips with the cash flows of investing to fund benefit payments.
Yes, I’d agree that accounting has been too focused on corporate earnings for too long. But the balance sheet isn’t really the issue; I’d rather the bean counters told us more about the cash flows of businesses, where they come from and what the investment returns from capital employed have been and are expected to be.
Focusing on intangible assets seems to me just to be trying to make work for valuers, rather than give analysts the ability to “follow the money” through better reporting of cash flows.