1. ACCOUNTING IN THE
KNOWLEDGE ECONOMY
Lecturers:
Prof. (FH) Mag. Dr. Ferry Stocker, Head of the Economics Department
Mag. Kerstin Strobach
Prepared By:
Burak Özsuna , Business Consultancy International (Master Programme)
1st Semester / University of Applied Sciences Wiener Neustadt
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December 3rd, 2010

2. CONTENTS
 Part 1 : The Knowledge Economy
 Part 2 : Accounting in The Knowledge Economy
 Part 3 : Measuring and Accounting for Intangibles - Current and
Potential Methods -
 Part 4 : Conclusion
 Part 5 : Discussion / Questions
 Sources
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3. WHAT IS THE KNOWLEDGE ECONOMY?
The knowledge economy is a term that refers either to
an economy of knowledge focused on the production
and management of knowledge in the frame of
economic constraints, or to a knowledge-based
economy.
In the second meaning, more frequently used, it refers
to the use of knowledge technologies (such as
knowledge engineering and knowledge management)
to produce economic benefits as well as job creation.
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4. GENERAL CONCEPT
A key concept of the knowledge economy is that
knowledge and education (often referred to as "human
capital") can be treated as one of the following two:
 A business product, as educational and innovative
intellectual products and services can be exported for a
high value return.
 A productive asset
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5. KNOWLEDGE ECONOMY INDEX
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6. THE FASTEST GROWING SECTOR
Knowledge workers has been the fastest
growing sector in the US economy and
comprised 75% of the total workforce in
2006.
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7. RAPID GROWTH: HUMAN CAPITAL
Other
R&D 7% Human
9% Capital
21%
UK Business spending on Design
intangibles in 2004. 14%
Organizational
Capital
Brand Equity 17%
15% Software
17%
Source: HM Treasury, October 2007
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8. ACCOUNTING IN THE KNOWLEDGE ECONOMY
What are the current and hot issues or problems?
Measurement and accounting for intangible assets.
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9. AN INTERESTING COMMENT
“ The market value of S&P (Standard & Poor's)
500 companies is more than six times that of
what is on their books. This means that for every
$6.50 or so of market value, only $1 appears on
the books. It's extraordinary that the balance
sheet number reflects only 15 percent or so of
the value of the company…“
Baruch Lev
Director
Vincent C. Ross
Institute of Accounting
Research
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10. “ACCOUNTING PRINCIPLES OUT OF DATE”
 Today, most companies show less than 20 percent
of their market value in tangible assets.
 The real value of the company is in intangible
assets, such as customer and vendor
relationships, copyrights, patents, knowledge and
etc.
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11. ACCOUNTING PRINCIPLES OUT OF DATE (Cont`d)
 The intangibles may have some monetary value on
the company's financials, the resources used to
develop these assets are frequently considered
expenses.
 Therefore, the money paid to build, develop or
make human resources more productive does not
build any offsetting asset on the company's
financials
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12. DEFINITION OF INTANGIBLE ASSETS
Intangible assets are defined as
identifiable non-monetary assets that
cannot be seen, touched or physically
measured, which are created through
time and/or effort and that are
identifiable as a separate asset.
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13. THE FORMS OF INTANGIBLE ASSETS
COMPETITIVE
LEGAL INTANGIBLES
INTANGIBLES
- Knowledge / Know How - Trade Secrets
- Collaboration Activities - Copyrights
- Leverage Activities - Patents
- Structural Activities - Trademarks
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14. CURRENT METHODS FOR MEASURING
THE INTANGIBLES
1. Direct Intellectual Capital Methods
2. Market Capitalization Methods
3. Return on Assets Methods
4. Scorecard Methods
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15. THE APPROACHES FOR MEASURING INTANGIBLES
1. Direct Intellectual Capital Methods
Estimate the money value of intangible assets by identifying its
various components. Once these components are identified, they
can be directly evaluated, either individually or as an aggregated
coefficient.
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16. THE APPROACHES FOR MEASURING INTANGIBLES (Cont`d)
2. Market Capitalization Methods
Calculate the difference between a company's
market capitalization and its stockholders' equity
as the value of it intellectual capital or intangible
assets.
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17. THE APPROACHES FOR MEASURING INTANGIBLES (Cont`d)
3. Return on Assets Methods
Average pre-tax earnings of a company for a period of time
are divided by the average tangible assets of the company.
The result is a company ROA that is then compared with its
industry average.
The difference is multiplied by the company's average
tangible assets to calculate an average annual earning from
the Intangibles. Dividing the above-average earnings by the
company's average cost of capital or an interest rate, one
can derive an estimate of the value of its intangible assets
or intellectual capital. 17

18. THE APPROACHES FOR MEASURING INTANGIBLES (Cont`d)
4. Scorecard Methods
The various components of intangible assets or intellectual capital
are identified and indicators and indices are generated and
reported in scorecards or as graphs.
SC methods are similar to Direct Intellectual Capital (DIC)
methods, expect that no estimate is made of the money value of
the Intangible assets. A composite index may or may not be
produced.
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19. INDUSTRIAL BUSINESS VS. KNOWLEDGE BUSINESS
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20. SAMPLE: THE INCOME FORMULA IN THE NEW ERA*
CONVENTIONAL ACCOUNTING IDEAL ACCOUNTING
Revenue
Revenues (Cost to serve customers)
(Cost to produce products/services)
(Cost of Goods Sold)
(Cost to develop products/services)
Gross Margin
(Administrative Costs)
(Operating Expenses) EBIT
EBIT (Taxes)
(Interest and Taxes) +/- Noncash Adjustments
Profit Cash Earnings
* For Know – How Companies
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21. KNOW-HOW CAPITAL = ORGANISATIONAL VALUE
In assessing the value of a know-how company, it is necessary to
use an overall view. Apart from its had (reported) assets, it has a
total know-how capital that makes it possible to attain a long-
term profit that is higher than the normal return on the reported
shareholders’ equity. This know-how capital consists of three
parts:
a) Structural capital
b) Human capital
c) Management capital
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22. THE KNOW-HOW COMPANY’S PROFIT AND LOSS ACCOUNT
(MUST TO HAVE)
P&L Table
Invoiced sales X
Operating costs before salary costs X
Salaries X
Operating profit before investment in the organisation X
Investment booked as cost
Structural capital X
Human capital X
Management capital X X
Operating profit before depreciation of plant X
Depreciation of plant X
Operating profit after depreciation of plant X
Net financial items X
Profit before appropriations and tax X
Appropriations X
Tax X
Net Profit X
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23. THE KNOW-HOW COMPANY’S BALANCE SHEET
BALANCE SHEET
HARD ASSETS
1. Working capital X
2. Fixed capital X
3. Financial capital X
Reported value X
Part 1
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24. THE KNOW-HOW COMPANY’S BALANCE SHEET (Cont`d)
BALANCE SHEET ( Cont`d)
ORGANIZATIONAL VALUE
Know - how capital
1. Structural capital
BALANCE SHEET (cont`d)
Business concept X FINANCING
Company name and market identity X 1.Borrowed capital X
Business fields and products X 2.Shareholders’ equity X
Customers X
Networks of contacts X Untaxed reserves
Organisational structure X Taxed capital X
Administration and accounting systems X
Reported value X
Production routines X
3. Shareholders’ equity
2. Human capital The value of the know-how capital X
Key people X Total value X
Other personnel X
X
3. Management capital X
Part 3
Total value X
Part 2 24

25. AN EXAMPLE: BALANCE SHEET WITH HUMAN CAPITAL
The XYZ Company Ltd Balance Sheet as at 31 December 2009
$ millions
Human Assets 812
Fixed Assets* 329
Net Current Assets 201
1.342
Equity 350
Loan Capital 320
Human Capital 672
1.342
*Excludes fixed assets forming part of human assets
Gearing: 26% Equity 24% Borrowings 50% Human Capital
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26. CONCLUSION
 The changes occurring in the world-wide economy directs all
countries to the search and the trial of different financial
methods. This difference didn’t remain only at the financial
extent, it also brought about the coordination of some certain
changes in other disciplines with the world-wide practices. One
of these disciplines is accounting.
 Recording methods used in accounting have shown a tendency
of differentiation with the effect of changings taking place in
economic structuring. The aim of this presentation is to
explain the effects of knowledge-based economy structuring
on recording methods in accounting.
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27. DISCUSSION
Can the cost of human capital (as an intangible
asset) be the same as the cost of commercial
capital? If not, why?
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28. QUESTIONS
• What are the current methods for
measuring the intangibles?
• While growing the knowledge economy,
what are the issues for accounting? Please,
explain it briefly.
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29. REFERENCES
o Bender, C., Röhling, T., Ansätze zur Bewertung und Risikomessung von Humankapital, 2001
o Drucker, P., The Effective Executive, 1966
o Drucker, P., The Age of Discontinuity, Chapter 12, 1969
o Goughnour R.C., Human Resources on the Balance Sheet, Alaska Business Monthly, October 2003
o Kenneth, M.W., Nippani, S., Financial Counseling and Planning Volume 15 (1), 2004
o Leydesdorff, L., The Knowledge-Based Economy: Modeled, Measured, Simulated, 2006
o Mansour, E., Ahmed, M., Missi, F., Validity of Accounting Models in the Knowledge Era, May 2008
o Rooney, D., Hearn, G., Ninan, A. Handbook on the Knowledge Economy, 2005
o Sveiby, K.E., Methods for Measuring Intangible Assets, 2001
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30. Thank You For Your Attention.
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