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Should data be listed on the balance sheet as a business asset?

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There’s no question that data is one of the most valuable assets many businesses hold.

It’s data many decision makers will turn to when deciding on a new product to launch, which initiatives to implement and how to understand their organisation’s performance.

As the world becomes ever more connected the volume of data is only going to keep growing and so does its potential, but it poses some key questions on how it is collected, stored, used, managed, and even valued.

It’s this last on in particular which merits consideration. Gartner predicts that by 2022, companies will be valued on their information portfolios. The firm stated: “Those in the business of valuing corporate investments, including equity analysts, will be compelled to consider a company’s wealth of information in properly valuing the company itself.”

This leaves many businesses questioning whether data should be recorded as a tangible corporate asset on the balance sheet. A problem which has vexed accountants for decades.

In 2016 the Financial Accounting Standards Board (FASB) assembled a group of researchers to study updating its accounting rules to potentially record data as an asset. At the time of writing, the researchers have yet to figure out how to estimate the fair value of such assets. Until they can, the accounting rules will remain as they are.

Gathering momentum

At some point, such estimations of data’s value will be achievable. As the old adage goes, “Where there is a need, there is a way.” And there is definitely a need to account for the value of data.

According to the Federal Reserve Bank of Philadelphia, US companies likely have more than $8 trillion in intangible assets, roughly half the market capitalisation of the S&P 500 Index!

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No wonder shareholders, institutional investors and boards of directors are clamouring to have data listed on the balance sheet. In many information-rich businesses, data may in fact be their biggest asset.

A report by Capgemini EMC on big data indicates that 61% of companies believe the monetisation of their data could eventually be as valuable as their existing products and services.

Unfortunately, many investors are leery about committing capital to information-rich companies because the asset value of their information “cannot be found anywhere on the balance sheet,” Gartner stated.

Time will tell

In all likelihood, data will eventually be recorded as a tangible asset. Gartner advises using its Information Valuation Method to value information assets much like other enterprise assets. It includes six formal information valuation models, a mix of financial measures, leading indicators and trailing indicators.

It’s a good start. But companies still need to establish the means to rapidly identify, accumulate and evaluate data to apply the valuation methodology accordingly. Many organisations are impeded in this goal by legacy technology tools that require the need for software developers to painstakingly hand-code the integration of data from across the enterprise.

In order to positively influence the completeness and timeliness of the valuation process, users need modern, cloud-based tools to rapidly connect multiple types of data from different systems and applications and then stream these results into a data lake.

With thorough integration unifying the multiple endpoints of diverse systems and applications, it opens up a universe of data that is instantly accessible for analysis and valuation.

Given the strong chance that accounting regulations will soon change to require listing data as a tangible asset on the balance sheet, those organisations who get their house in order now will have a competitive advantage.