Accounting Challenges in Recognition and Measurement of Intangible Assets

Abstract

This research paper investigates the persistent and evolving challenges in the recognition and measurement of intangible assets within contemporary financial reporting
frameworks. While traditional accounting standards have struggled to adequately capture the value of intangibles such as intellectual property, brand equity, and data assets,
the digital economy has exponentially increased their significance, rendering existing
methodologies increasingly inadequate. This study proposes a novel, hybrid valuation
framework that integrates principles from information systems governance, continuous
auditing, and machine learning to address these deficiencies. We move beyond conventional cost or market-based approaches by developing a multi-attribute, probabilistic
model that accounts for an asset’s strategic fit, scalability, defensive value, and network
effects. Our methodology employs a cross-disciplinary lens, drawing from fraud risk
management techniques in banking to assess the reliability of internally-generated intangible valuation inputs, and from clinical AI systems to handle sparse or non-financial
data. The paper formulates and addresses three core research questions: (1) How can
accounting frameworks evolve to recognize intangible assets that are generated organically and lack direct transactional evidence? (2) What measurement techniques can
provide reliable, verifiable, and relevant valuations for assets characterized by high uncertainty and rapid obsolescence? (3) How can audit and governance mechanisms be
adapted to ensure the integrity of reported intangible asset values? Through a series of
simulated case studies involving technology and pharmaceutical firms, we demonstrate
that our proposed framework reduces valuation volatility, enhances predictive relevance
for future cash flows, and provides a more robust audit trail compared to existing prescribed methods. The findings contribute original insights by redefining the problem
from one of mere measurement to one of integrated information system design, where
the accounting for intangibles is embedded within the firm’s strategic data governance
and continuous assurance processes. This represents a significant departure from standard literature and offers a pathway toward more representative financial statements
in an intangible-intensive economic landscape.