Internally generated brands: Nestlé’s hidden assets

Abstract

In the aftermath of COVID-19 pandemic, it has become apparentthat the most value-creating resources in business enterprises arethe invisible assets, the assets of the knowledge-based economy.1These include nonfinancial assets: for example, patents, informa-tion technology, and brands. Working remotely without offices tominimize physical contact has confirmed that what truly allowedorganizations to survive through the crisis are not the physicaltangible assets of the industrial revolution (factories, machinery,vehicle). Just as COVID-19 necessitated and accelerated innova-tion in every surviving economic activity, it has shone a light onthe urgency of reforming how innovative intangible investments2are accounted for. As today’s organizations adapt to the “new nor-mal,”3the accounting community must confront the limitationof traditional historical-cost-based accounting, which have kepttheir most valuable assets, especially home-grown brands, off thebalance sheet.This essay offers a timely perspective on the “the thornydebate” about the accounting treatment for internally createdintangibles4by employing a single company, Nestlé, a major branded food multinational enterprise. By looking at a real-world example, this paper hopes to provide fresh inputs toconvince policy makers to reconsider the immediate expensingof own-developed brands, the driving force behind corporatesurvival during post-COVID-19 era. This paper explains howlong-lived brands, in the context of the food and householdproducts sector, have become key competitive assets respon-sible for the survival of branded goods companies throughthe COVID-19 crisis. It describes the harmful consequencesof the asymmetric accounting treatment for acquired intangi-bles (capitalized on the balance sheet) compared with otherwisesimilar or identical intangible assets created internally that areexpensed through the income statement. I then present the casefor treating internally generated brands as assets because theyhave similar characteristics as physical and financial assets—and acquired intangible assets– that comply with the IASB’sConceptual Frameworkof 2018. Finally, this paper concludeswith a call for urgently needed of accounting-for-intangiblesreform.