INSIGHT: Accounting for the value of data in the company balance sheet

Most organisations across New Zealand are gathering, storing and extracting value from data, yet accounting for data as an asset on the company balance sheet remains difficult.

Most organisations across New Zealand are gathering, storing and extracting value from data, yet accounting for data as an asset on the company balance sheet remains difficult.

So much so that Kiwi organisations that can find a way to do this can add millions of dollars in value to the business.

“Organisations spend significant amounts of money and time on data analytics projects that reduce costs, improve service delivery, segment customer marketing, ramp up logistic efficiency and much more,” says Alec Gardner, general manager, Teradata A/NZ.

“So it’s clear that investing in data analysis represents excellent value for money.

“But the value of that data as an asset to the organisation still isn’t recognised in financial statements, which means organisations are missing out on the opportunity to improve the company’s overall value.”

For Gardner, balance sheets include both tangible (physical) and non-tangible assets.

An organisation can be worth billions of dollars even if only a small percentage of its assets are tangible - this is because non-tangible assets such as goodwill and patents are extremely valuable.

It is, however, difficult to accurately include data within a traditional balance sheet accounting framework with the Centre for Economics and Business Research citing six key reasons for this, including:

· the varied nature of data

· the difficulty of estimating data ROI

· separating the cost of gathering data from the cost of doing business

· data becomes outdated very quickly and could prove worthless in the long run

· legal and regulatory conditions

· data only has value if it can be accessed and analysed by current technology

“There is a way to include data in the balance sheet,” Gardner adds. “Research and development (R&D), traditionally seen as a cost of doing business, can now be regarded as an investment for balance sheet purposes.”

Because data is integral to R&D, Gardner says it can be accounted for as part of the R&D budget.

“This can mean millions or even billions of dollars flowing into balance sheets in the form of ‘data as an intangible asset’,” he adds.

“Even as accounting standards allow for the value of data to be added to the balance sheet, CEOs will continue to demand cash value from the big data investment while it’s happening.

“The best way to do that is to effectively analyse the data and use the insights to achieve competitive advantage as fast as possible.”

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