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Intangible assets valuation in Nigeria: a review of the concept and practice

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Abstract

Asset valuation is an important aspect of valuation in Nigeria but little or nothing have been heard about the way and manner in which intangible components in such valuations are handled in Nigeria most especially at this time that debate about its value measurement and reporting to external user is gaining renewed interest. This study assesses rate of asset valuation relative to other valuation instructions received by Valuers in the study area, the level of familiarity of the real estate practitioners with various classifications of intangible assets as well as identification criteria, approaches and methods adopted. Structured questionnaire was administered on 300 registered Estate Surveying and Valuation firms in Lagos and Federal Capital Territory out of which 227 were retrieved and found good for analysis. The data obtained were analysed using simple descriptive and weighted mean score. The findings revealed that much importance is not attached to intangible assets in value creation process. Some practitioners are unfamiliar with the criteria for identifying intangible assets while some considered it convenient to summarize intangible assets as goodwill therefore avoiding conduct of in-depth analysis using appropriate valuation approaches and methods. It is therefore suggested that expertise development and specialization should be encouraged in the profession to ensure valuations involving such volatile form of assets are handled by competent and experienced valuation analysts.
Sodiya, A. K., Adetokunboh, O. O. and Agbato, S. E. (2017) Intangible assets valuation in
Nigeria: a review of the concept and practice In: Laryea, S. and Ibem, E. (Eds) Procs 7th
West Africa Built Environment Research (WABER) Conference, 16-18 August 2017, Accra,
Ghana, 945-960
945
INTANGIBLE ASSETS VALUATION IN NIGERIA:
A REVIEW OF THE CONCEPT AND PRACTICE
Sodiya, Abiodun K.
1
, Adetokunboh, Olaseni O.
2
and Agbato,
Samson E.
3
1,2,3Department of Estate Management & Valuation, Moshood Abiola Polytechnic,
Abeokuta, Nigeria
Asset valuation is an important aspect of valuation in Nigeria but little or
nothing have been heard about the way and manner in which intangible
components in such valuations are handled in Nigeria most especially at
this time that debate about its value measurement and reporting to
external user is gaining renewed interest. This study assesses rate of asset
valuation relative to other valuation instructions received by Valuers in
the study area, the level of familiarity of the real estate practitioners with
various classifications of intangible assets as well as identification criteria,
approaches and methods adopted. Structured questionnaire was
administered on 300 registered Estate Surveying and Valuation firms in
Lagos and Federal Capital Territory out of which 227 were retrieved and
found good for analysis. The data obtained were analysed using simple
descriptive and weighted mean score. The findings revealed that much
importance is not attached to intangible assets in value creation process.
Some practitioners are unfamiliar with the criteria for identifying
intangible assets while some considered it convenient to summarize
intangible assets as goodwill therefore avoiding conduct of in-depth
analysis using appropriate valuation approaches and methods. It is
therefore suggested that expertise development and specialization should
be encouraged in the profession to ensure valuations involving such
volatile form of assets are handled by competent and experienced
valuation analysts.
Keywords: estate surveyors, non-physical asset, valuation
approaches, valuation methods, valuers
INTRODUCTION
The term intangible asset is a concept to which no unanimous agreement
exists on its definition. They are non-physical assets which can neither be
seen nor felt yet have a value. Their contribution and significance to
business organizations and government corporate investments amongst
1
abiodun.sodiya@yahoo.com
2
detokunboh@gmail.com
3
samsonagbato@yahoo.com
Sodiya, Adetokunboh, and Agbato
946
others is irrefutable as highlighted by various authors (Hall 2000;
Bookstaber, 2007; Lopez & Gomes-Rodrigues, 2007; Namakura, 2008). In
fact, many technological and science based organizations derive greater
portion of their value from them (Lopez & Gomes-Rodrigues, 2007).
There are different angles to intangible assets discussions depending on
who is involved. For Financial Accountants, the subject has been discussed
since 1950s (Artsberg & Mehtiyeva, 2010). Meanwhile, Lopez and Gomes-
Rodrigues (2007) believed it emerged around two decades ago as an
important phenomenon in business organizations, asset valuation
discourse and accounting theories. More so, there exist differences in the
manner in which some balance sheet elements are considered and treated
by Accountants and Valuers. In preparing financial performance and net
worth of a business, assets and liabilities are reported at their net book
value by the former while the latter reports the assets at their current
market value. Accountants treat goodwill as an asset provided it will be
written off from the balance sheet but from the point of view of the Valuer,
goodwill always remain in the organization unless adverse business
conditions turn it to zero or even bad will (Ezeude, 2003).
As important as intangible assets are considered, they are normally
excluded in annual financial reports due to the volatile nature of the assets
and considerable difficulties in their value measurement thereby providing
incomplete information for the users of the document (Lopez & Gomes-
Rodrigues, 2007; CGMA, 2012; Omoye, 2013). Meanwhile, some scholars
have noted that for financial statement to become value relevant in this
modern time, recognition of intangible assets is imperative (Mandel,
Hamm & Farrel, 2006; Bookstaber, 2007; Zeghal & Maaloul, 2011). The
extent of consideration given to this class of assets in the general valuation
practice are shrouded in mist as little have been revealed from available
studies. Lately, the topic on intangible assets value measurement and
reporting to external users have been gaining renewed interest in financial
accounting through a number of relevant studies, hence, the need to assess
the general practice in intangible asset valuation among the Valuers with
a view to addressing relevant challenges as it affects value measurement.
The aim of the paper is to evaluate the concept and practice of intangible
assets valuation among real estate practitioners (ESVs) in Nigeria. Thus,
the objectives are to:
assess rate or volume of asset valuation briefs relative to other
valuation instructions received by Valuers in the study area,
examine the level of familiarity of the real estate practitioners with
various classifications and identification criteria relevant to
intangible assets, and
examine the conversance of Valuers with approaches and methods
adopted in intangible asset value measurement.
Sodiya, Adetokunboh, and Agbato
947
LITERATURE REVIEW
Concept of Intangible Asset
Asset valuations are value estimation of all the tangible and intangible
assets of an individual or company including land, building, plant and
equipment, furniture and fittings, working capital, goodwill and other
intangible assets for a variety of purposes. Such valuation may be required
for company asset register, floatation of shares, merger and takeovers,
liquidation and tax purposes amongst others. This description of asset
valuation explains clearly that the term ‗asset‘ comprises of two broad
components, namely: tangible and intangible assets.
Intangible asset which is the focus of this work is defined by SAS 31 and
IFRS 3 as ―an identifiable non-monetary asset without physical
substance‖. According to Blair and Wallman (2003), they are non-physical
factors that contribute to or are used in the production of goods or the
provision of services that are expected to generate future productive
benefits to the individuals or firm that control their use. Typical intangible
asset cannot be bought or sold in an organized market and are sometimes
interlinked with a specific activity, product/service or business. The
measurement of its value requires many technicalities as it is prone to
fluctuations which are not common to physical assets. They cannot be
touched, grasped, easily cost, counted and quantified (Blaug & Likki,
2009). Examples of these are brand name, computer software, copyrights,
patents, trademarks, internet domain names, mastheads, customers list,
books, magazines, pictures, maps, trade secrets etc.
In the work of Ogunba (2013), intangible assets summarily comprise of
contract benefits, non-contractual benefits, goodwill and intellectual
properties. This explanation about the composition of intangible assets
stemmed from and in fact the same as the four categories as provided in
IVSC (2007:204), namely: intangible assets arising from rights (contracts),
relationships (non-contractual), grouped intangibles (goodwill) and
intellectual properties.
Whenever Estate Surveyor and Valuers are commissioned to undertake
asset valuation it is implied that regards will be given to the two basic
components of assets (i.e. tangible and intangible). According to Ikedianya
(2001), tangible components are the static, physical body of a business
enterprise whose values are usually deduced through conventional asset
valuation methodologies while intangible components are the ‗spirit and
soul‘ of the entity determined through her performance of Operation
Efficiency Coefficient. This underscores the indispensability of the
intangibles in determining the asset value of any business concern. As
important as it is, valuation of intangibles usually stretch the professional
skills of the valuer who is certainly more at home with the valuation of
tangible elements (Ogunba, 2013). Though, the writer noted that recently
Estate Surveyors and Valuers are becoming more skilled and experienced
in valuing intangible assets, their proficiency is more or less limited to
goodwill. Ezeude (2003) posited that more often than not, when
Sodiya, Adetokunboh, and Agbato
948
undertaking asset valuation, valuers tend to highlight only the physical
assets while de-emphasizing the contribution of intangible assets or
summarizing it simply as goodwill.
The concept of goodwill is often confused with intangible asset.
Historically, intangible assets have been treated as an aggregated amount
which is summarized as goodwill without impact on national wealth
included in financial statement of firms (Lopez & Gomes-Rodriguez, 2007).
Meanwhile, intangible assets are non-physical resources that can be
identified, measured and managed (e.g. corporate brand name). On the
other hand, goodwill represents residual intangible factors which cannot
be identified or measured separately, e.g. a company‘s good reputation
(Epstein & Mirza, 2005). Therefore, identifiable intangible assets cannot
however be combined with goodwill (Grant Thornton, 2008). This obviously
relates that goodwill is an intangible resource, but is different and not
equal to intangible asset. This, however, questions the valuation practice
mentioned by some scholars (Kuye, 2000 and Ezeude, 2003) that deals
mainly with the assessment of tangible elements and goodwill as an
answer to asset value.
The debate on recognition of intangible is upcoming and heated. Intangible
assets have become the point of attraction to many organizations,
investors, financial analysts, accountants, valuation analyst and
regulations alike in recent times and this has spurred attempts to
understand and streamline the gap between company‘s book of account
and market value (Barton, 2005; Omoye, 2013). According to Zeghal and
Maaloul (2011), if financial statements must become value relevant in this
modern time, recognition of intangibles in the statement must be of
essence. In fact, it is further noted by Omoye (2013) that businesses are
being challenged by rapid industrialization and globalization to develop
and acquire intangible assets as a survival strategy and a means of
gaining competitive advantage amidst the dynamic business environment.
To buttress this, Bookstaber (2007) gave an illustrative picture about the
importance of intangible asset as compared to tangible asset. Summarily,
he made manifest that hybrid corn seed, for instance, is „80 percent science
and 20 percent corn‟. That 80 percent of the value of such hybrid corn is
constituted in the non-physical substance (science) and 20 percent physical
(corn), referring to the extensive lab development behind its creation. In
the same vein, Mandel et al (2006) also pointed out that though Apple
computers sold more than 40million ipods in 2005 owing to the unique
innovation and great design, however, published data did not capture in
the value what Apple spent on research and development and brand
development, which according to statistics totaled at least $800million in
2005 rather, they counted ipods. Meanwhile, the market price of ipod holds
in it the ―great design, technical innovation and brand recognition‖ which
were brought about by research and development. These need to be
properly identified and adequately accounted for as part of the effort
(intangible assets) that gave the product its market value.
Sodiya, Adetokunboh, and Agbato
949
Identification and Classification
Classification criteria can never be true or false, only more or less useful
according to suggested purpose (Rosing, 1978). Intangible assets have been
variously classified by scholars and standards. The classes of intangible
assets based on NAB31 include; brand names, masthead and publishing,
computer software, license and franchises, copyrights, patents and
industrial property rights, services and operating rights, recipes, formulae,
models, designs and prototypes and intangible assets under development.
Collings (2011) in his view classify intangible resources to comprise assets
such as licenses and quotas, patents and copyrights, computer software,
trademarks, franchises and marketing rights. Meanwhile, Wyatt and
Abenethy (2003) grouped intangible assets under four broad
classifications: acquired intangible assets-this include acquired
identifiable intangible asset (e.g. acquired patents and trademarks brand)
and purchased goodwill that is acquired in business combination; research
and development i.e. expenditures associated with R&D activities
performed within the firm, expenditure for exploration, evaluation and
development; internally generated intangible asset e.g. identified
intangible asset produces by the firm and internal goodwill that is not that
easily attributed as to its source of value etc. and intellectual property-
which are subset of acquired and internally generated intangible asset e.g.
patents, trademarks, designs, licenses, copyrights, firm rights and
mastheads.
Levi (2001), writing in the tradition of intellectual capital classifies
intangible into four groups namely:
i. Discovery/learning e.g. research and development
ii. Customer related e.g. brand, trademarks, distribution channels etc.
iii. Human resource e.g. education, training and compensation systems
iv. Organization capital e.g. structural organization design, business
processes, unique corporate culture.
Walker (2009) concludes that it is difficult to find any stated purpose for
classification in many papers that do classify intangibles. However, one
purpose seems to be for management purpose. In order to manage
successfully one has to make visible and put labels on different resources
(Kaufman & Schneider, 2004). However, for a classification to be useful
and accurate, there should rather not be any overlaps between the
different categories. The Financial Accounting Standard Board (FASB)
classification can be seen as particularly helpful in that regards as well as
being more refined. FASB suggested classifications into the following
seven categories:
i. Technology based assets
ii. Customer based assets
iii. Market based assets
iv. Workforce based assets
v. Contract based assets
Sodiya, Adetokunboh, and Agbato
950
vi. Organization based assets
vii. Statutory based assets
Identifiability is one unique characteristic that distinguishes intangible
assets from goodwill. Only identifiable assets are recognized and
accounted for independently while other non-physical unidentifiable assets
are subsumed under goodwill. The two basic criteria to identifying
intangible assets according to IFRS 3. B33 and IAS 38.12 are:
i. Capability of being separated or divided from the entity and sold,
transferred, rented or exchange individually without selling the
entity in its entirety.
ii. Availability of third party originated evidence of their existence (i.e.
originating from legal or contractual right).
If the contractual legal criterion is not met, the intangible assets must be
separable in order to be identifiable. Broadly, an asset is considered
separable if it is capable of being sold or otherwise transferred without
selling the entity. Where separation is possible only as part of a larger
transaction, judgment is required to determine whether the items under
review constitute the acquired business itself or part of it. For instance,
the content of a database used by a provider of business intelligence may
not be separable from the business itself- there would be no business
remaining if the database content was sold to a third party. By contrast,
where the content database is a by-product of the business activity and
may be licensed out to a third party on non-exclusive terms, then this
indicates separability. It is also relevant to note here that intangible assets
are identified and measured individually, however, prevailing
circumstances and available facts may make it preferable to combine
similar assets for valuation purposes and subsequent accounting (Grant
Thornton, 2008). A good example is a number of different patents which
relate to same technology and contribute to the same income stream.
The below intangible asset categories highlighted overleaf is exactly
similar to what is contained in IVSC (2017). It recognised that there are
many intangible assets, but they are often considered to fall into one of the
above five categories.
Other intangible resources are commonly found in business combinations,
but do not meet the definition of an identifiable intangible asset. Examples
are previously recognised goodwill, assembled workforce, synergies,
market monopoly, market share, high credit rating amongst others. These
resources are not capable of being separated and do not arise from
contractual or legal right therefore are not considered as identifiable
intangible asset, they are subsumed under goodwill within IFRS 3. Value
is sometimes attributed to these items in order to determine the values of
some other assets that do need to be recognised.
Sodiya, Adetokunboh, and Agbato
951
Examples of Items that meet Definition of Intangible Asset Based on Two
Criteria
Class/Category
Items that meet definition of intangible asset based on
two criteria
Market Related
Intangible Assets
Trademarks, trade names, service marks, collective marks
and certification marks #
Internet domain names #
Trade dress (unique colour, shape or package design) #
Newspaper mastheads #
Non-competition agreements #
Customer Related
Intangible Assets
Customer lists*
Order or production backlog #
Customer contracts and the related customer relationships
#
Non-contractual customer relationship *
Artistic Related
Intangible Assets
Plays, operas and ballets #
Books, magazines, newspapers and other literary works #
Musical works such as compositions, song lyrics and
advertising jingles #
Pictures and photographs #
Video and audiovisual material including films, music
video and television programmes #
Contract Based
Intangible Assets
Advertising, construction, management, service or supply
contracts #
Licensing, royalty and standstill agreement #
Lease agreement #
Construction permits #
Franchise agreement #
Operating and broadcasting rights #
Use rights such as drilling, water, air, mineral, timber
cutting and route authorities #
Servicing contracts such as mortgage contracts #
Employment contracts that are beneficial contracts from
the perspective of the employer because the pricing of
those contracts is below their current market value #
Technology Based
Intangible Assets
Patented technology #
Computer software and mask works #
Unpatented technology *
Databases*
Trade secrets such as secret formulas, processes or recipes
#
Note: # and* denote items that are identifiable by satisfying the contractual-legal
criterion and items that are identifiable by satisfying the separability criterion,
respectively
Source: IFRS 3.IE16-44
Valuation Approaches and Methods
Specific valuation models and techniques have emerged for estimating
values of intangible assets. These identifiable assets acquired in business
Sodiya, Adetokunboh, and Agbato
952
are recorded by their acquirer at ―fair value‖, therefore, the general
approaches and methods are targeted towards estimating fair value. Fair
value is defined as the ―amount for which an asset could be exchanged, or
a liability settled, between knowledgeable, willing parties in an arm‘s
length transaction‖ (IFRS 3A). It is an estimate of the amount that would
be paid or received on disposal of an item in a hypothetical transaction.
Valuation analysts have been valuing intangible asset independently for
many years for the purposes of exchange between owners, estate or gift tax
or as part of litigation assignment or for general consulting and
transactional support engagements amongst others. Previous studies
emphasize three basic approaches towards intangible assets value
measurement, namely: cost, income and market approaches (Reilly &
Schwechs, 1998; Cohen, 2005; Trugman, 2011; CGMA, 2012; IVSC, 2017).
According to Holloway and Reillys (2012), for each intangible asset
valuation, the analyst will typically choose the approach (or approaches):
i. for which there exist highest quantity and quality of data,
ii. that best reflect the actual transactional negotiation of market
participants in the operators‘ industry,
iii. that are most consistent with practical experience and professional
judgment of the analyst and,
iv. That best fit the characteristics (e.g. age, use etc.).
Market approach methods are based on economic principles of efficient
markets and supply and demand (Holloway & Reilly, 2012). Under this
approach, it is assumed that an asset can be related to the value of
comparable assets priced in the market place. Market approach methods
are particularly applicable when there is sufficient quantity of comparable
(almost identical) intangible asset transaction data. E.g. direct market
evidence is usually available in the valuation of internet domain names
and emission rights amongst other. However, observable market based
transactions of identical or substantially similar intangible assets recently
exchanged in an arm‘s length transaction are often difficult to obtain
(CGMA, 2012). The more heterogeneous assets are the more difficult it is
to use the market approach and once there is no active market for
substantially similar intangible, comparable approach cannot be used
(Lopes & Rodriguez, 2007). Some of the market approach methods are
sales comparison and market multiples methods amongst others. Sources
of market based valuation data are published licensing surveys, published
licensing deals, published court cases, license price list or rates offered.
Cost approach methods are based on economies principle of
substitution, i.e. the value of the subject intangible assets is influenced by
the cost to create a new substitute intangible asset (Trugman, 2011;
Holloway & Reilly, 2012). The approach seeks to estimate fair value by
quantifying the amount of money that would be required to repurchase or
reproduce the asset being considered. It takes into consideration physical
deterioration (usually has no bearing with intangible asset) as well as
Sodiya, Adetokunboh, and Agbato
953
technological and economic obsolescence where applicable. Summarily,
cost approach methods are essentially applicable to the valuation of a
recently developed intangible asset. In the case of relatively new
intangible asset, the owner/operator development cost and effort data may
still be available. More so, it is also applicable to valuation of an in-process
and non-commercialized intangible assets. The cost approach for
intangible is probably the most linear which considers the book cost or the
replacement cost (Reilly & Schweihs, 1998). There are several cost
approach valuation methods (e.g. trended historical cost, reproduction cost
new and replacement cost new etc), each valuation method under this
approach, use measurement metric. The commonest cost definition is
reproduction cost new and replacement cost new. Thus, for intangible
asset without an active market or under a comparison limitation, cost
approach will be followed on systematic basis. Cost methods are primarily
considered while valuing assembled workforce, internally developed
software, internet domain names etc.
Income approach methods are based on the principle that the value of
any investment is the present value of the income that the owner expects
to receive on owning that investment. This according to Holloway and
Reilly (2012) was called principle of economies of anticipation. Income
based models are best used when the intangible asset is income producing
or when it allows an asset to generate cash flow. Income approach
techniques convert future benefit to a single, discounted amount, usually
as a result of increased turnover or cost savings.
The major challenge within income approach method is distinguishing the
cash flows uniquely related to the intangible asset to the whole company.
Examples of income approach valuation methods are relief from royalty
method, premium profit method, premium pricing method, cost savings
method or avoided cost method etc. Income approach based methods are
given primary consideration while valuing intangible assets as patents,
technology, copyrights, brand names and customer relations amongst
others.
Sodiya, Adetokunboh, and Agbato
954
RESEARCH METHODOLOGY
Data for this research was obtained from Estate Surveyors and Valuers
who are registered with Estate Surveyors and Valuers Registration Board
of Nigeria (ESVARBON) and have practicing firms in Lagos and the
Federal Capital Territory. According to the information retrieved from the
official website of NIESV (in January 2017) there are three hundred and
sixty-three (363) and one hundred and eighteen (118) Estate Surveying
and Valuation firms in Lagos and Abuja respectively. The most recent
directory of the Nigerian Institution of Estate Surveyors and Valuers was
published in 2014 which is three (3) years down the line. Therefore, it is
believed that the information contained on the official website will be
better updated and that it will reflect the firms that have probably
changed addresses as well as new comers.
Using Taro Yamane formula for sample determination which is expressed
mathematically as: n = N/1+Nx2 (where n is the sample size, N =
population size and x = acceptable margin of error 0.05), the sample size of
281 was arrived at and this was rounded up to 300 firms, representing 62
percent of the population. To use Taro Yamane formula, it is essential that
population to be considered should be finite. The result of this formula
gives the lowest acceptable number of responses to maintain a confidence
level. The sample size of 281 derived above, therefore represent the
minimum acceptable number of respondents required to maintain a 95
percent confidence level. This, however, means that the resulting sample
size can be increased if so desired, but cannot be reduced. Hence, the need
for rounding up to 300 firms. The proportional allocation of sample to
Lagos and Abuja was done with the formula: nh = Nh/N x n, where Nh=
population size of each selected location, N = total population of estate
firms in Lagos and Abuja, and n= total selected sample size of both
locations (281 approximated to 300); h is the location
NLagos = 363 x 300 =226 firms
481
NFCT = 118 x 300 = 74 firms
481
The sample was subsequently selected using simple random sampling
technique. Out of the 300 questionnaires administered, two hundred and
twenty-seven were retrieved (representing 75.7%) and were analysed
using simple descriptive statistics and weighted mean score. In the study,
weighted mean score was used to analyze responses on factors considered
by Estate Surveyors and Valuers in their choice of classification, approach
and methods and to test their conversance with same in intangible asset
valuation. It is used in this survey to show the weight of each factor or
components considered given the distribution of the responses among
factors/components and inferences were drawn therefrom. This method is
used for its ease of understanding and simplicity of communication of the
Sodiya, Adetokunboh, and Agbato
955
study. 3 and 4 points Likert scale were used and options were ranked in
their order of strength. The weighted mean score is calculated as follows:
󰇛󰇜
 

where x = the value; w = the weight
The research instrument was structured to examine how familiar the
Estate Surveyors are with the acceptable classifications, valuation
approaches and methods adopted in intangible asset value measurement.
Also, it was designed to identify the intangible resources considered while
undertaking asset valuation. The findings emanating from the analysis of
the data therefore form the basis from which conclusion is drawn.
RESULTS AND DISCUSSION
Table 1: Professional Qualification of Respondents
Table 1 shows that 29.1% of the respondents are probationer members,
53.7% are Associate and 17.2% are Fellow of the Nigerian Institution of
Estate Surveyors and Valuers. This shows that majority of the
respondents are qualified (70.9%) to undertake valuation of properties,
therefore, information gotten from them can be relied upon for the purpose
of this work and the result emanating therefrom can be reliably
generalized.
Table 2: Frequency at which under listed valuation instructions are received
Valuation
instruction
Very often
(%)
Often (%)
Rarely
(%)
Never
received (%)
Land and building
62.6
37.4
0.0
0.0
Stock
0.0
0.0
79.7
20.36
Asset
16.7
50.1
33.1
0.0
Compensation
10.1
26.4
48.9
14.5
Table 2 indicates that 66.9% of the respondents receive asset valuation
instruction frequently while 33.1% rarely received asset valuation briefs.
The valuation instruction with highest level of frequency (i.e. very
often/often) is land and building valuation with weighted mean score of
3.62 while second to this is asset valuation brief (2.83). This suggests that
companies often engage the services of real estate practitioners in the
valuation of their assets for different purposes. This confirms that the
respondents are conversant with asset valuation and have knowledge of
the topic under study. It also reveals that asset valuation is common in
valuation practice amongst the valuers in the study area
Probationer (%)
Associate (%)
Fellow (%)
29.1
53.7
17.2
Sodiya, Adetokunboh, and Agbato
956
Table 3: Factors informing Valuers‟ choice of classification, approach and
methods while undertaking valuation of intangible assets
Factors
Always
Sometimes
Seldom
Never
Weighted
Mean score
Experience
57
148
22
0
3.90
Common sense/rule of thumb
21
23
115
68
2.04
Consultation with Estate
Surveyors & Valuers (ESVs)
65
97
48
17
2.92
Opinion of organization‘s
Accountant/Book keepers
0
113
76
38
2.33
Theoretical guidelines from
research work
50
101
25
51
2.66
Professional institutions
guidelines/standards
28
112
55
32
2.59
Table 3 indicates that Valuers rely largely on experience to identify,
classify, and determine approach, methods and procedures to be adopted
in their intangible assets valuation exercise as indicated by the weighted
mean score of 3.90 which ranked first. This is followed by the advice gotten
from consultation with other colleagues in the profession (2.92) while
consideration to guidelines established through research ranked third in
the six (6) factors considered. Professional guidelines/standards which is
expected to be a very essential factor ranked fourth with weighted mean
score of 2.59. The implication is that out of the six (6) factors listed,
majority of the respondent valuers feel more comfortable to go with their
experience and advice from colleagues than relying on professional
guidelines and standards to classify or select valuation approach and
methodology while carrying out valuation of intangible assets. This
suggests the existence of a high level of subjectivity in the choice(s) of the
Valuers. Also, there is possibility that where Valuers are faced with some
items of intangibles on which they have no prior exposition as well as few
other colleagues consulted, the asset may not be properly identified and
accounted for in the valuation. This may largely result in inconsistency
and diversity in practice.
Table 4: Familiarity with the criteria for identifying intangible asset
Criteria
Very conversant
Conversant
Fairly
conversant
Not conversant
Contractual-Legal
0 (0%)
25 (11.0%)
127 (55.9%)
75 (33.1%)
Separability
0 (0%)
42 (18.5%)
62 (27.3%)
123 (54.2%)
Table 4 shows the two (2) criteria recognised by IFRS 3 for identifying
intangible assets from other intangible resources. It revealed that 11.0% of
the sampled respondents are conversant, 55.9% are fairly conversant while
33.1% are not conversant with the contractual-legal criterion (third party
originated evidence through contract or license). This altogether means
that an overwhelming majority (89%) either has little or no idea about
Sodiya, Adetokunboh, and Agbato
957
what the contractual-legal criterion represents. On the other hand, 54.2%
of the respondents, which represents a simple majority, are not conversant
with separability criterion. None of the respondents is very conversant
with the two criteria for recognizing intangible assets. This revealed that
to identify intangible assets, use of standard criteria is still a challenge
among the Valuers. It is not enough to have some knowledge about the
workings of one criterion as the two are used simultaneously. Where this
occurs, it means that the resources which are supposed to be identified
using the separability criteria will probably be discountenanced and
subsumed under grouped intangibles (goodwill).
Table 5: Valuers conversance with methods of valuation used in intangible
asset valuation
S/N
Methods
Very
conversant
Fairly
conversant
Not
conversant
Weighted
mean score
1.
Premium profit
0
91 (40%)
136 (60%)
1.4000
2.
Premium pricing
0
45 (20%)
182 (80%)
1.198
3.
Royalty savings
125
9 (59%)
93 (41%)
2.141
4.
Cost saving
50
51 (45%)
126 (55%)
1.665
5.
Residual earning
46
44 (40%)
137 (60%)
1.599
6.
Comparative income
differential
38
14 (23%)
175 (77%)
1.397
7.
Multi period earning excess
15
8 (10%)
204 (90%)
1.167
8.
Reproduction/replacement
cost new
191
36 (100%)
0 (0%)
2.841
9.
Cost avoidance
82
21 (45%)
124 (55%)
1.815
10.
Historical trended cost
49
18 (30%)
160 (70%)
1.511
11.
Sales comparison
201
15 (95%)
11 (5%)
2.837
12.
Market multiples
89
8 (43%)
130 (57%)
1.819
Table 5 reveals that majority of the ESVs are only familiar with three (3)
of the twelve (12) methods that are relevant to intangible assets valuation
while the existence and concept of nine (9) other methods are still not clear
to many. The ones they are conversant with are the
reproduction/replacement cost new (2.841); sales comparison (2.837) and
royalty savings methods (2.141).
All the respondents are familiar with the three common valuation
approaches adopted in the valuation of intangible assets, namely: income,
market and cost approaches. The principles behind these approaches are
essentially similar to what obtain in the methods of valuing other physical
assets like land and buildings.
Table 6: Treatment accorded to intangible resources that are not easily
identified by the criteria in Table 4
Grouped under Goodwill (%)
Not Grouped under Goodwill (%)
57
43
57% of the Estate Surveyors and Valuers said they sometimes subsume
intangible resources under goodwill where it is difficult to identify and
determine the class of the non-physical asset. The implication is that
intangible asset may perhaps be wrongly categorized as goodwill. Where
Sodiya, Adetokunboh, and Agbato
958
this occurs, the intangibles will possibly be undervalued and inadequately
accounted for.
SUMMARY OF FINDINGS
From the foregoing however, the following findings were made:
i. That Estate Surveyors and Valuers often receive asset valuation
instructions. Next to land and building valuation, asset valuation
appears to be the next common instruction they receive.
ii. That appreciable number of Estate Surveyors and Valuers are not
conversant with intangible assets identification criteria, thereby
sometimes difficult for them to differentiate intangible assets from
goodwill.
iii. That majority of Estate Surveyors and Valuers are not conversant
with the intangible asset valuation approaches and methods. They
are very familiar with methods used in regular valuation of land
and building and few intangible asset valuation methods that are
similar in concept and principle to land and building valuation
methods. This corroborates the position of Ogunba (2013) that
valuers are ―more at home at the valuation of fixed assets‖ and that
intangible asset normally stretches the professional skill of valuers.
iv. That Estate Surveyors and Valuers rely more on experience and
consultation with colleagues without giving cognizance to guidelines
contained in international valuation standards while undertaking
asset valuation.
RECOMMENDATION AND CONCLUSION
Intangible asset valuation is mostly required by business organizations
and as such, conformity with the basic workings and international best
practice recognized by the users is key to acceptance. Real estate
practitioners from the result need to acquaint themselves more with the
criteria for identifying, classifying and methods for measuring values of
intangible assets. This will ensure uniformity of procedures and avoid
unnecessary discrepancies between Valuers judgment and standards.
Some practitioners consider it convenient to summarize intangible assets
as ‗goodwill‘ therefore avoiding conduct of in-depth analysis using known
valuation approaches and methods. It is therefore suggested that
valuation standards should be well considered by valuers as a useful guide
in intangible asset valuation to ensure uniform approach to identification,
classification and measurement of intangible assets.
Also, expertise development and specialization should be encouraged in
the profession to ensure valuation involving such volatile form of assets is
handled by competent and experienced valuation analysts.
Sodiya, Adetokunboh, and Agbato
959
Valuation curricula in higher institutions should be reviewed to reflect the
need for this new reality in real estate profession in Nigeria. The curricula
in Nigeria today does not include much on intangible assets. Therefore,
there is need to include topics on classification, identification, approaches
and methods as well as International Valuation Standards relating to
intangible asset valuation in the curriculum at the higher level to enable
better understanding and appreciation.
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