Kohler’s definition of intangible assets (IA) is still regarded by many scholars as one of the most adequate: capital asset having no physical existence, its value being limited by the rights and anticipative benefits that possession confers upon the owner (KOHLER, 1957). In turn, CPC 04 (2008), item 8, defines intangibles as identifiable non-monetary assets without physical substance, and recommends their identification by the organization.

Lev (2001) considers intangible assets to be rights and claims to expected benefits without physical or financial substance originating from discoveries, organizational practices and human resources. With emphasis on the ability of intangible assets to create value, Kayo (2002) sees in them a structured set of knowledge, practices and attitudes interacting with the organization´s tangible assets to compound company value.

Intangibles constitute an important element in the study of accounting theory, especially after the realization of their value to organizations (IUDÍCIBUS, 2004) and express a potential for future economic benefits. Hendriksen and Van Breda (2007, p. 387) stress that to be defined as assets, intangibles must satisfy the criteria for recognizing any type of asset, that is, “they should be measurable, relevant and reliable”.

According to the definition given in CPC 04, intangible assets must be (i) separable from the organization, sellable, transferable, licensable, rentable, exchangeable and includable in/excludable from contracts, or (ii) the result of contractual and other legal rights (CPC, 2008).

The current interest in intangible assets is explained by changes in organizational structures associated with increased competition and IT developments, making such assets major indicators of company value (LEV, 2001). To Perez and Famá (2006a), intangibles such as brands, patents, intellectual capital and authors’ rights are unique assets, usually as a result of innovation and knowledge. Likewise and Crisóstomo (2009) believes corporate wealth is created by means of innovation.

Despite the importance attributed to intangible assets, there is so far no consensus in the literature regarding their classification. Table 1 shows a number of possible classifications.

Table 1
Classification of intangible assets.

Source: the authors, based on a review of the literature.

It may be seen from Table 4 that some intangible assets, such as human resources, are more difficult than others to identify, quantify and control.

Table 2
Final study sample.

Source: Data retrieved from “Exame Melhores e Maiores 2010”.

Table 3
Indicators and equations used in the study.

Source: Adapted from Perez and Famá (2006a, 2006b), Patrocínio, Kayo and Kimura (2007) and Ritta and Ensslin (2010).

Table 4
Composition of intangible assets in accounting documents issued by the banks in the sample, organized according to type, period, number and percentage.

Source: Data collected for the study (2011).

For the purpose of this study, we adopted the classification proposed by Brooking (1996) which segregates intangible assets into market assets, human-centered assets, intellectual property assets and infrastructure assets. Over the past decade, this classification has been employed by a number of researchers, including Allee (2000), Marr, Schiuma and Neely (2004), Bollen, Vergauwen and Schnieders (2005) and Kot (2009), and in a wide range of empirical settings (ANTUNES; LEITE, 2008; SANTOS; SILVA; GALLON, 2011). However, as pointed out by Marques (2009, p. 195), “no single method can satisfy all purposes and needs: researchers should select the method most appropriate for the purpose, the context and the audience (internal or external) of the study”.

As explained by Antunes and Leite (2008), not all intangible assets are included in accounting statements due to the difficulty in measuring their cost and synergistic effects with other assets. This is an important observation in view of our purpose of identifying the intangible assets disclosed in the accounting statements of the largest banks in Brazil, in compliance with the recent changes in corporate law, and evaluating fluctuations in the degree of intangibility.

The proportion of intangibles (such as brand names, patents and formulas) in relation to firm value has grown dramatically, especially since the 1980s (KAYO; FAMÁ, 2004). These authors used the ratio between market value and book value as a proxy for the level of intangibility, as we shall see in the following section.

The concern of scholars with growth in firm value (market, stock exchange) reflects the common understanding that intangible factors are playing an increasing role in the total value of organizations. Indeed, Antunes and Martins (2007) believe the discussion on intangible assets in the academic and corporate context is highly relevant to the creation of wealth in organizations. The overall growth in the degree of intangibility may be attributed to increasing competition on the globalized market and the impact of new technologies on organizational structure (LEV, 2001).

Obtained by dividing the organization’s market value by its book value (equity), the degree of intangibility (DI) indicates the proportion of intangible assets in relation to total assets (PEREZ; FAMÁ, 2006a, 2006b; COLAUTO et al., 2009). Thus, the calculation of DI is based on the assumption that “what is left of market value when fixed assets are subtracted must correspond to intangible assets” (STEWART, 1998, p. 201).

In other words, DI expresses the number of times the market value (total value of shares) is greater than equity as disclosed in accounting statements (ENSSLIN et al., 2009). The greater the difference between the values, the greater the degree of intangibility. To Kayo and Famá (2004), the ratio between the total price of shares and the value provided in accounting statements is a helpful indicator in the analysis of discrepancies in company value.

The relation between market value and book value has always been of interest to accounting. Santos and Schmidt (2009) reported that worldwide the average market value is twice the book value, but in the US the difference may be from 2 to 9 times. This is explained by the importance acquired over the years by intangible assets in detriment of tangible assets and by the difficulty in identifying, quantifying and recognizing such assets (ANTUNES; LEITE, 2008).

Perez and Famá (2006a) analyzed the impact of unrecorded intangible assets on business performance to determine whether such assets contributed significantly to the creation of value for shareholders. They inferred that, during the study period, tangible assets were responsible for regular earnings only, while true creation of value was ascribed to intangible assets.

In the present study, DI and IIIA were calculated based on accounting statements issued for the financial exercises ending on December 31st 2007, 2008, 2009 and 2010, respectively, in order to evaluate the impact of the introduction of stricter accounting regulations in 2007 (Law 11.638).

The introduction of mandatory disclosure of intangible assets, in association with the convergence on IFRS, is in this study considered an institutional issue, despite the opinion of Lima et al. (2010) that changes in accounting regulations cannot be interpreted without taking into account other elements of institutional infrastructure, and that international standards allow for a substantial amount of discretion on part of the organization since the process of quantification involves judgments based on private information.

As explained by Crubellate (2007), in this perspective the institutional environment is seen as a determinant of organizational behavior, or at least as a variable independent of it. In turn, Dimaggio and Powell (1983) believe organizations tend to conform to the environment, thereby promoting structural isomorphism, and that the existence of institutional isomorphism shows that organizations compete not only for resources and customers, but also for political influence and institutional legitimacy (DIMAGGIO; POWEL, 1983).

Finally, it should be pointed out that the question of convergence on international accounting standards has been analyzed in light of Institutional Theory, as in the present study, by several researchers over the past decade, including Ball, Kothari and Robin (2000), Irvine (2000), Hopwood (2000), Carpenter and Feroz (2001), Potter (2005) and Nobes (2006).

Table 4 shows the number and percentage of banks disclosing investments in intangible assets (i.e. intangible assets of which the value is other than zero) segregated by category in accounting statements issued during the period covered by the study.

As seen in Table 4, explanatory notes were the type of document most frequently used to present or decompose intangible assets, probably because of recommendations of CPC 04 to the effect of segregating intangible assets by category in explanatory notes only. With regard to the disclosure of intangible assets in explanatory notes, it should be noted that IAS 38 (2008) requires the disclosure of at least the following items:

• the useful life or amortization rate used,

• the amortization method used,

• gross book value and accumulated amortization (aggregated with accumulated impairment losses) at the beginning and end of the period,

• the items of each line of the income statement in which the amortization of intangibles is included, and

• reconciliation of the amounts registered at the beginning and end of the period.

The percentage of banks disclosing the composition of intangible assets in explanatory notes increased from 75% in 2007 to 82% in 2010.

Changes were particularly visible in the aftermath of the passage of Law number 11.638/07 and the publication in 2008 of CPC 04, suggesting the introduction of new regulations produced a positive impact on disclosure practices and on the quality of accounting information. Iudícibus et al. (2010) and Santos et al. (2011) reached similar conclusions.

The observed increase in the number of banks disclosing intangible assets and in the practice of segregating assets by category in accounting reports is supported by the findings of Antunes (2006), Reina, Vicente and Ensslin (2008) and Arruda, Cabral and Araújo (2010) who―in addition to quantitative growth― reported qualitative improvements in the reporting of intangible assets of Brazilian firms.

Furthermore, to remain competitive, service providers (such as banks offering financial intermediation) have to develop their IT capabilities. Adequate technical knowledge and well-designed information systems have become indispensable for individuals and organizations intent on rendering quality services, indicating an increase in intangible assets in these organizations (MARQUES, 2009).

Table 5 presents types of intangible assets according to frequency (number of times the information was disclosed in reports) and average investment (in BRL and %) obtained by dividing the sum of the values for each type by the number of financial exercises (n=4) within the study period.

Table 5
Frequency and average investment in types of intangible assets as disclosed in the accounting statements of the banks in the sample.

Source: Data collected for the study (2011).

Twenty types of assets were identified among the intangible assets disclosed by the banks in the sample (Table 5). Certain types of assets were increasingly recognized, or more fully disclosed, towards the end of the study period, especially “improvements to third- party property”, “goodwill”, “brands”, “customer portfolio-related assets” and “contract-related assets” (classified as market assets), “IT developments”, “cost of software acquisition”, “software―developed and under development” and “software and systems” (classified as infrastructure assets), and “patents” (classified as intellectual property assets).

The highest average frequency was observed for the types “acquisition of payrolls” (3.25), “cost of software acquisition and development” (5.25), “software and systems” (4.75) and “other intangible assets” (5.01). The lowest average frequency was observed for the types “goodwill on incorporation”, “improvements to third-party property”, “IT developments”, “brands”, “patents” and “contract-related assets” (0.25 in all cases).

IAS 38 (2008) defines goodwill as an additional value paid in a business combination with regard to the acquirerʼs participation in the fair value of the acquireeʼs identifiable assets and liabilities. The norm also specifies that the acquirer must acknowledge identifiable net assets in the business combination, including assets not listed in the acquireeʼs financial statements. The full amount paid to acquire a firm in a business combination should be disclosed in the individual statements of the acquirer, with no segregation of goodwill, if any. IFRS 3 (R) (2010), which regulates business combinations, determines that intangible assets should be quantified according to their fair value on the date of acquisition.

In terms of average investment, the most representative types were “goodwill” (classified as a market asset) (38.79%) and “acquisition of payrolls” (classified as a human-centered asset) (28.74%). It should be added that, according to item 49 of IAS 38 (2008), goodwill generated internally in the firm, that is, goodwill involving spending with the purpose of obtaining future advantages, does not necessarily result in the creation of a new intangible asset if the costs involved are not adequately quantified.

In a study on the identification, measurement, valuation and recognition of intangible assets in accounting statements issued in 2006 and 2007 by firms listed in the Portuguese Stock Index (PSI-20, a major Portuguese market reference index), Marques (2009) observed the highest average frequency of disclosure of the types “goodwill”, “spending on R&D”, “software and industrial property and other rights”, “intangible assets in progress”, “acquisition of subsidiaries or jointly controlled firms”, “licenses for exploitation and concessions”, “incorporeal assets in progress” and “brands”. As for investments in R&D, IAS 38 (2008) specifies that spending on research should be acknowledged as an expenditure when incurred, while spending on development should be considered an intangible asset, as long as it meets certain requirements, especially the ability to be used or sold in the future.

Table 6 shows the distribution of investments in intangible assets of the banks in the sample, organized according to period, amount (BRL) and proportion in relation to total investments in intangible assets (BROOKING, 1996). Whenever brands and patents were presented in accounting statements as a single type, we segregated the item into “brands” (a market asset) and “patents” (an intellectual property asset) in accordance with the classification adopted (BROOKING, 1996).

Table 6
Distribution of investments in intangible assets (IA) of the banks in the sample, organized according to period, value and percentage of total investment in IA (Brooking, 1996).

Table 6
Distribution of investments in intangible assets (IA) of the banks in the sample, organized according to period, value and percentage of total investment in IA (Brooking, 1996).

Source: Data collected for the study (2011).

The most frequently disclosed category throughout the study period was “infrastructure assets”. The category was disclosed by all the banks in the sample (Table 6).

The present study offers some important findings in view of the importance of the intangible assets goodwill on merger and goodwill on acquisition of controlled companies by financial institutions. However, in Brookingʼs classification (1996), goodwill on merger and on acquisition is included in the definition of market assets, rather than a separate item of analysis.

As shown in Table 5, the sampled banks disclosed these categories of intangible assets in 2008 (three entries), 2009 (two entries) and 2010 (one entry), but only one of these was identified as goodwill on merger in 2008.

Goodwill on acquisition was disclosed by Banco Bradesco S.A. regarding the acquisition (incorporation of shares) of Odontoprev. It is also important to mention that all firms reported that registered goodwill was subject to impairment testing at least once a year, whenever a decrease in the allocated assetʼs recoverable value was indicated, as specified by IAS 38 (2008) and CPC 04 (2008).

Interestingly, human-centered assets were highly representative in statements issued by ItauUnibanco, Santander, Banco do Brasil and Banrisul. This seems to depart from the results published by Santos et al. (2011) in a study on firms traded on BM&FBovespa and included in the ranking of innovative firms of the Brazilian Index of Innovation (IBI). In their study, no human-centered assets were identified. According to Brooking (1996), human-centered assets are potential benefits derived from the expertise, creativity, knowledge and problem- solving skills of individuals, considered collectively and dynamically (Table 1).

Only two banks in our sample (Bradesco and ItauUnibanco) disclosed assets in the category “intellectual property assets”. In Brooking’s words (1996), intellectual property assets require legal protection in order to benefit organizations (e.g. know- how, industrial secrets, copyrights, patents, design) (Table 1).

The category “other intangible assets” included assets identified as such by the disclosing organizations. Investments in this category were only representative in one bank (B14), and specifically in 2010. We believe the discrepancy may be due to difficulties in classifying intangible resources, rather than changes in actual asset composition.

Based on information retrieved from balance sheets for the years 2007, 2008, 2009 and 2010 and, when necessary, explanatory notes, we evaluated the representativeness of intangible assets in relation to total assets (Figure 1) and non-current assets (Figure 2).

Figure 1
Representativeness of investments in intangible assets in relation to total assets.
Source: Data collected for the study (2011).

Figure 2
Representativeness of investments in intangible assets in relation to non-current assets
Source: Data collected for the study (2011).

To facilitate visualization, we excluded banks that did not provide information on the representativeness of intangible assets in relation to total assets (B7, B8, B9, B10, B11, B12 and B13). For a list of codes assigned to the banks in the final sample, see Table 2.

The representativeness of intangible assets in relation to total assets was between 0% and 1.5% in 2007 (Figure 1). The figures for 2008 ranged between 0% and 2.5%, with one notable exception (B2: 8.5%). The following year, a reduction in the representativeness of intangible assets was observed in most banks. In 2010 the index behaved somewhat inconsistently: in some institutions the index shrank to 0%, in others it reached peak values for the study period. In a similar analysis involving 45 public firms, Comunelo, Marcon and Thiesen (2010) found that in approximately 64% of the sampled organizations, intangible assets accounted for less than 1% of total assets. Thus, in some of the analyzed banks the representativeness of intangible assets in relation to total assets was above average, especially in the participants (B1, B3 and B4) of the survey conducted by IAM Consulting in partnership with Brand Finance (THE BRANDER, 2009).

Figure 2 illustrates the representativeness of intangible assets in relation to non-current assets as disclosed by the banks in our sample in 2007, 2008, 2009 and 2010. To facilitate visualization, we excluded banks that did not provide information on the representativeness of intangible assets in relation to non-current assets (B8, B9, B10, B11 and B12).

It may be seen from Figure 2 that on the average the representativeness of intangible assets increased throughout the study period. This is supported by Backes, Ott and Wiethauper (2005) who observed the proportion of investments in intangible assets in Brazilian firms change from irrelevant to significant over relatively few years. In our sample, the index rose especially between 2007 (1.15%) and 2008 (3.00%) and between 2009 (2.85%) and 2010 (11.75%). Similar conclusions were reached by Marques (2009) in a study revealing that most firms included in the PSI-20 presented an increase in investments in intangible assets in 2007, indicating a growing interest in intangible resources among Portuguese firms.

Banco Santander (B2) differed greatly from the rest of the sample with regard to the representativeness of intangible assets in relation to both total and non-current assets, especially after 2008, due to more efficient asset recognition and quantification.

In general, the representativeness of intangible assets in relation to non-current assets increased, especially in 2009 and 2010, whereas the degree of intangibility (DI) was mostly lower in 2010 than in 2007. This will be discussed in the following sections.

With the purpose of determining whether company size was a conditioning factor of DI, we calculated the DI of the banks in the sample with the largest and smallest equity per year and the mean DI of each bank (Table 7). The banks were classified as “larger” (B1 to B9) or “smaller” (B10 to B18) based on the equity of 2009 as given in the ranking of “Exame Melhores e Maiores 2010”.

Table 7
Degree of intangibility (DI) of the banks in the sample with largest and smallest equity throughout the study period (2007-2010).

Source: Data collected for the study (2011).

The results presented in Table 7 show that banks with larger equity tended to present higher average DI values, suggesting a positive association between company size and DI.

The average DI decreased from 2007 to 2010 in both larger and smaller banks (from 2.51 to 1.54, and from 1.83 to 0.88, respectively), possibly because an increasing number of intangible assets are being recorded in the balance sheet thereby reducing the proportion between market value and book value. In fact, intangible assets constitute an important indicator of the discrepancy between the total value of shares and book value disclosed in accounting reports (KAYO; FAMÁ, 2004).

Figure 3 shows the mean, minimum and maximum DI of the banks in the sample with the largest and smallest equity.

Figure 3
Mean, minimum and maximum degree of intangibility (DI) of the banks in the sample with the largest and smallest equity.
Source: Data collected for the study (2011).

In both groups of banks, the mean, minimum and maximum DI decreased throughout the study period (Figure 3). However, more importantly, larger banks presented higher average DI values for 2007 and 2010 than smaller banks, supporting the data presented in Table 7.

The observed reduction in DI between 2007 and 2010 may also be a repercussion of the global economic crisis in 2008, the immediate effect of which was the plummeting of share prices in stock markets around the world. As foreign speculators rushed to sell their shares to cover losses in their home countries, the market value of many Brazilian banks decreased significantly.

In order to determine whether listing segment was a conditioning factor of DI, we segregated the banks in the sample by BM&FBovespa listing segment and calculated the mean DI of each segment for the period 2007-2010. To calculate the annual segment average we divided the sum of the DI of each year by the number of banks in the segment. The segment average for the entire the study period (2007-2010) was obtained by dividing the sum of the annual segment averages by four (Table 8).

Table 8
Mean degree of intangibility (DI) per year and BM&FBovespa listing segment.

Source: Data collected for the study (2011). L1=Differentiated Level 1; L2= Differentiated Level 2; NM=New Market; TM=Traditional Market.

As shown, the mean DI was higher in banks in corporate governance-specific listing segments (New Market, Level 1, Level 2) than in banks traded on the traditional market (TM), indicating a possible positive association between listing segment and DI. Our results are supported by Ensslin et al. (2009) who reported the mean DI of firms in the New Market segment (2.03) to be almost twice that of firms in the TM segment (1.07).

Figure 4 shows the behavior of the DI (the number of times market value is greater than book value, represented by equity) in our sample of banks in the period 2007- 2010.

Figure 4
Behavior of the degree of intangibility (DI) of the banks in the sample in the period 2007-2010.
Source: Data collected for the study (2011).

Throughout the study period, a decrease in DI was observed. This is particularly evident when comparing figures for 2007 (prior to changes in corporate legislation) and 2010. Based on these figures, it may be inferred that, overall, the difference between equity and market value decreased.

The behavior of the IIIA, which indicates the level of corporate investments in intangible assets according to Ritta and Ensslin (2010), for the banks in our sample between 2007 and 2010 is illustrated in Figure 5.

Figure 5
Behavior of the Index of Investments in Intangible Assets (IIIA) of the banks in the sample between 2007 and 2010.
Source: Data collected for the study (2011).

Banks with an IIIA consistently below 0.5% (B8, B9, B10, B11, B12, B13 and B15) were not included in Figure 5. It may be inferred from Figure 5 that larger banks (greater equity, according to “Exame Maiores e Melhores 2010”) tend to present higher IIIA values. In comparison, Ritta and Ensslin (2010) found IIIA values of 22.5% (2007) and 30.3% (2008) for firms included in the Bovespa Index (IBOVESPA).

Table 9 shows the relation between IA and DI before (2007) and after (2010) the introduction of mandatory IA disclosure in the accounting statements of the institutions in our sample. Banks without information on IA for 2007 and 2010 were not included in Table 9.

Table 9
Intangible assets and degree of intangibility of the banks in the sample before (2007) and after (2010) the introduction of mandatory disclosure of intangible assets in accounting statements.

Source: Data collected for the study (2011).

In 2010, IIIA had increased and DI had decreased in relation to figures for 2007, with two exceptions: in B5 the IIIA decreased and the DI increased, while in B16 both parameters decreased.

Table 9 also shows that, in some cases, IA-intensive and non-IA-intensive banks displayed similar DI values, suggesting the absence of an association between DI and investments in intangible assets.

According to Kayo, Kimura, Martin and Nakamura (2006), it is important to identify the determinants of intangibility and to understand how intangible assets aggregate value to firms. In fact, a number of researchers, including Chauvin and Hirschey (1993), Megna and Klock (1993), Villalonga (2004), Perez and Famá (2006a) and Ensslin et al. (2009), have investigated the influence of intangible resources on business performance.

The last table of our study illustrates the behavior of IA and market value of the country’s largest banks in 2009 and 2010 (Table 10).

Table 10
Behavior of intangible assets and market value of the largest banks in Brazil in the period 2009-2010.

Source: Data collected for the study (2011).

Despite the overall increase in mean investments in intangible assets (+1.86%) and market value (+0.88%), no symmetry was found in the behavior of these parameters in view of the large and inconsistent oscillations observed (Table 10). Ensslin et al. (2009) obtained similar results in a study based on a sample of the top 60 firms in the BOVESPA index (IBOVESPA) over the period 2005- 2007: annual oscillations were large and asymmetrical, and no correlation was found between variations in return on investment (ROI) and variations in DI.

Corresponding author: Tel + 55 85 3366-7802. E-mail : alegallon@terra.com.br (A. C.Vasconcelos); rosangela_felix.s@ hotmail.com (R. F. Santos); marciadeluca@ufc.br (M. M. M.Luca); vac@ face.ufmg.br (J. V. A.Cunha). Universidade Federal do Ceará - Av. da Universidade 2431 Benfica 60020- 180 - Fortaleza, CE - Brasil