European businesses have discovered the importance of big data and analytics to their short- and long-term success, in the wake of the 2008 financial crisis and subsequent regulatory initiatives. Yet using current accounting methods they struggle to reflect data as a valued asset on their balance sheets, a report suggests.
The report, produced jointly by the London-based Centre for Economics and Business Research (Cebr) and business analytics specialist SAS, is entitled
‘Data on the Balance Sheet’
and suggests that recognising the value of data goes beyond company interests and it is vital in valuing national economies. Current accounting methods do not capture this importance, and the lack of awareness of data’s potential hampers policy decision-making.
The report discusses European companies’ ability to use the insight gained from big data analytics to improve customer relations, streamline production and develop new products. Because data provides potential future economic benefits, it should be regarded as a company asset.
Businesses already account for the cost of collecting, storing and analyzing data. Yet they do not adequately account for the value of data, nor for the potential from its development and use.
Cebr chief executive officer (CEO) Graham Brough believes that what is required is a forward-looking integrated accounting framework that shows investors a comprehensive view of a company’s value, including how they value their data.
“There are three ways to assess the value of data: on its market value, via the cost of collecting it and by the income derived from it where markets do not exist and value is sensitive to external competitive and regulatory factors,” says Brough.
“These three ways have limitations when it comes to depreciation, so we need to find systems outside traditional accounting practices that not only take into account financial and physical capital but also human, social, relationship and knowledge capital. We need forward-looking reports that include a company’s future prospects and not just a review of its past performance.”
The report is the latest to suggest a new framework that better accounts for the value of data will provide a stronger macroeconomic platform for European policymakers. Earlier Cebr reports found that realizing the full potential of big data could add £216bn and 58,000 jobs to the UK economy by 2017, while Ireland could benefit by around €27bn and 6,000 jobs.
Cash-flow based metrics now feature prominently alongside traditional revenue measures of business performance in the key figures or financial summary pages of any public company.
With the end of 2017 fast approaching, many finance professionals might be counting down the days with some degree of dread. Year End is just around the corner and with it comes the many long hours accountants will spend going over balance sheets and profit and loss accounts, investigating account irregularities and chasing sign offs.
The EU and US’ shift in accounting standards may bring balance sheet losses and increase credit risk, according to James Elder, director of risk services at Standard & Poor’s (S&P) Global.
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