ABSTRACT
Brands have long been regarded as important sources of value to com panies in the food, drink and consumer goods industries. It is therefore strange at first sight that the debate over whether brands should be included as assets in the balance sheet should appear to be one of recent and local origin. In the United Kingdom, the stimulus for the brands debate was the move by the large food company Ranks Hovis McDougall to include ‘home-grown’ brands as assets on its 1988 balance sheet. Yet treating brands as accounting assets - ‘brand capitalization’ - is a phenomenon that has its roots not in Britain but rather in Australia, where a decade of corporate take-over and merger activity in the 1980s (particularly in the food and drink and the media industries) provided a climate in which the most aggressive companies boosted their balance sheets by capitalizing on such diverse ‘intangible’ assets as newspaper titles, licences to operate television stations and brands of beer (Goodwin and Harris 1991). In Europe, brand capitalization is spreading: increasing numbers of
French, Italian and Spanish companies are including brands on their balance sheet (FEE 1992: 236). Many of these are in the food and drink industries: in France, for example, drink company Pernod Ricard and food producer BSN have reflected brands on the balance sheet, the latter (ironically for a French company) capitalizing such traditional British brands as ‘Lea & Perrins Worcestershire Sauce’ (Alexander and Archer 1992: 173). However, those countries with a rigid tradition of conservatism in accounting, such as Germany and Japan, have so far resisted brand capitalization. The most anomalous situation is in the United States, where rigid accounting rules make it
very difficult for intangibles to be shown as assets in company accounts, even though they often count as assets for tax purposes. If the brands debate in the UK had simply been a reaction to a single
company’s innovative accounting policy, then brand accounting might be regarded as one of those ephemeral issues that trouble a profession for a short time and then disappear from the agenda. Accounting for brands is, however, only the most recent manifesta tion of fundamental conflicts in the nature and purpose of corporate accounts. In attempting to resolve the brands issue, accountants must come closer to answering questions as to the essential nature of assets, the relative status of cost and value, and, at a professional level, how far accountants are able to assert a monopoly over the form and content of company accounts. As intangibles, brands fall into a class of potential assets that have
created quandaries for accountants throughout the last 150 years, the whole period of corporate financial reporting. In the first section of this chapter, the accounting issues raised by brands and other intan gibles are considered. The second section examines how intangibles in general, and those precursors of brands as objects of accounting, trade marks, were accounted for up to the late 1970s. The third section reviews the brands debate, and the final section concludes with some thoughts on how brand accounting is likely to resolve itself in the future.
