CHAPTER-V

EXTENT OF INTANGIBLE ASSETS DISCLOSURE

This chapter discusses the extent of intangible assets disclosure by the companies. The
extent of disclosure has been measured in terms of attribute-wise disclosure, category-wise
disclosure and company-wise disclosure by applying intangible assets disclosure index to the
annual reports of the sample companies in India for the years 2003-04 and 2007-08. The nature
of intangible asset disclosure has also been studied
This chapter has been divided into two sections. Section I discusses the attribute-wise
disclosure, category-wise disclosure and nature of disclosure. Section II deals with the
company-wise disclosure of intangible assets information presented in the annual reports of
selected sample companies in India for both the years of study.
SECTION I
5.1.

ATTRIBUTE-WISE DISCLOSURE IN ANNUAL REPORTS

This section explains the attribute-wise analysis for each and every category of
intangible assets disclosure index1. The intangible assets disclosure index consists of five main
categories, out of which four relate to voluntary intangible assets disclosure and one relate to
disclosure requirements as per Accounting Standard-26 on Intangible assets.
Table 5.1 presents the attribute-wise disclosure both in absolute figures as well as in
percentages for the years 2003-04 and 2007-08 respectively. The attribute-wise disclosure
score has been calculated for each attribute included in the intangible assets disclosure index,
by dividing the total weighted disclosure score attained for that attribute with the maximum
weighted disclosure score.
The maximum disclosure score for attributes in human capital, external capital,
internal capital, intangible assets scoresheet category and for attribute intangible assets
valuation2 in mandatory disclosure requirement category is 486 (243 companies multiply with
maximum score of 2). The maximum score for remaining attributes in mandatory disclosure
requirement category is 243 (243 companies multiply with maximum score of 1).
For example, the training and development attribute in human capital category for
the year 2003-04 has weighted disclosure score of 128 and the percentage disclosure of
26.34% (score attained 128 divided by 486 maximum disclosure score).
1
2

For details, see chapter III, Database and Research Methodology, pp. 40.
Intangible assets valuation falls in the Mandatory disclosure requirement category. A score of 0 or 2 has been given to this
attribute as valuation has to be in monetary terms and cannot be qualitatively stated.

68

Table 5.1
Attribute Wise Analysis in Annual Reports
2003-04

2007-08

Percentage
change in
disclosure
score in year
2007-08 over
2003-04

Weighted
Disclosure
score

%
Disclosure

Weighted
Disclosure
score

%
Disclosure

-Number

294

60.49

346

71.19

17.69

-Gender

0.41

10

2.06

400.00

-Professional Qualification and

Experience

149

30.66

207

42.59

38.93

-Compensation

155

31.89

203

41.77

30.97

128

26.34

188

38.68

46.88

Work related knowledge

0.82

1.85

125.00

Entrepreneurial Spirit

0.21

12

2.47

1100.00

Human resource accounting

1.23

1.23

0.00

149

30.66

215

44.24

44.30

1.23

1.23

0.00

Distribution channels

132

27.16

205

42.18

55.30

Market share, markets

235

48.35

291

59.88

23.83

Business collaboration

163

33.54

228

46.91

39.88

Customer satisfaction

27

5.56

41

8.44

51.85

Customer information (no.)

84

17.28

130

26.75

54.76

Social Activities

141

29.01

205

42.18

45.39

ATTRIBUTES

HUMAN CAPITAL
Employees

Training and development

EXTERNAL CAPITAL
Brands and their description
Brand valuation

Cont

69

2003-04

2007-08

Percentage
change in
disclosure
score in year
2007-08 over
2003-04

Weighted
Disclosur
e score

%
Disclosur
e

Weighted
Disclosur
e score

%
Disclosur
e

Research projects

268

55.14

312

64.20

16.42

Networking and information

systems

27

5.56

77

15.84

185.19

Organisation Structure

11

2.26

28

5.76

154.55

Corporate culture

49

10.08

110

22.63

124.49

Patents

53

10.91

83

17.08

56.60

Copyrights

0.82

1.44

75.00

Trademarks

1.44

34

7.00

385.71

INTANGIBLE ASSETS
SCORESHEET

1.23

1.23

0.00

Distinguish between internally

generated and other intangible
assets

2.47

21

8.64

250.00

Details of amortisation rates,

method and carrying amount at
beginning and end of period

92

37.86

177

72.84

90.22

Classification of intangible assets

87

35.80

170

69.96

95.40

Other disclosures like pledging

information, reasons for amortising
over more than 10 years etc

0.82

2.88

250.00

184

37.86

354

72.84

92.39

ATTRIBUTES

INTERNAL CAPITAL

MANDATORY DISCLOSURE
REQUIREMENT

Intangible assets Valuation

70

A brief look of the table 5.1 shows that disclosure score in the year 2007-08 over
the year 2003-04 has improved for all attributes except three (for these three attributes it
remained constant). There is also significant change in percentage disclosure score in
year 2007-08 as compared to year 2003-04.
5.1.1 HUMAN CAPITAL
This category highlights the employee-based value drivers for a company. Human
capital depends on the competence, intellectual ability, and attitudes of the organizations
members. It is usually described as the gathered knowledge, skills and experiences that a
companys employees possess. Human capital is a binding factor between the various
components of intangible assets. Our ASSETS walk out of the door each evening. We
have to make sure that they come back the next morning," says Narayana Murthy, NonExecutive Chairman and Chief Mentor of Infosys (Infosys Technologies Ltd., Annual
report 2007-08). When a company invests in human capital, it increases its own value,
gaining a sustainable long-run competitive advantage. This category has total of eight
attributes.
The disclosure of Number of employees of a company is an indication of its
strength. As can be seen from the table 5.1, in both years, Number of employees is the
most reported attribute in the category of human resources. It has highest weighted
disclosure score of 60.49% in 2003-04 and 71.19% in 2007-08. The disclosure on number
of employees aids in analysing the change in operations of the company, and results in
depicting future growth prospects and stability to its investors.
The next attribute of human capital is the gender of employees working in a
company. It is an information regarding proportion of men and women who are
professional employees. This information is vital as businesses are consistently
recognising that a higher percentage of professional women in an organization translate
into a more innovative workforce. Companies acknowledge the valuable contributions
made by women at different managerial roles due to their innate skill sets. The present
study reveals least reporting regarding this attribute. Disclosure score is 0.41% and
71

2.06% for 2003-04 and 2007-08 respectively. Infosys Technologies is flagship company
to report this attribute : we are the first Indian IT company to set up a Diversity Office
for promoting diversity and inclusivity Our gender inclusivity model is an individuallytailored combination of support systems, company practices, and management policies
under the umbrella of IWIN Infosys Womens Inclusivity Network. IWIN is devoted to
creating a gender-sensitive work environment and making us the Employer of Choice for
women. (Infosys Technologies Ltd., Annual report 2007-08, p.9)
Professional qualification and experience is one of the most significant intangible
assets attribute among the human capital category. These people-based skills are essential
for operation and success of any organisation. They also depict quality of employees
working in an organisation. Disclosing information relating to educational qualification
of employees may signal to investors about high calibre management staff in the
company and superior hiring policies. However, only moderate disclosures of 30.66% in
2003-04 and 42.59% in 2007-08 have been made by the selected companies for this
attribute. This attribute is second most reported attribute in human capital category for
the year 2007-08 (Table 5.4).
The attribute Compensation has a weighted disclosure score of 31.89% in 200304 which improved to 41.77% in 2007-08. The significance of this attribute can be
judged from the fact that the compensation given to employees in financial and nonfinancial forms has positive impact on their performance and motivation. It also cements
in the development of other intangibles within the same category like employee
capabilities and employee satisfaction. Tata Steel Ltd. reported on this attribute as
Having always focussed on people as the key resources, fair compensation has been an
area of importance. A market based benchmarking of compensation is undertaken to
ensure that Tata Steel remains employer of choice in all the countries in which it
operates. (Tata Steel Ltd., Annual report 2007-08, p.65). Table 5.4 shows that this
attribute is the second most reported for the year 2003-04.

72

Training and development activities are very essential for a company to update
the professional skills and knowledge of its employees. Galbreath (2005) found that
intangible resources like skills and capabilities of employees have a higher contribution
to a companys success than other tangible or intangible assets. . Disclosure regarding
training and development information in the annual reports gives its stakeholders an
evidence of companys commitment to invest in its employees which influences its
performance and thereby shareholders return. For example Sterlite Industries India Ltd
discloses in its 2007-08 annual report During 2007-08, Sterlite conducted 437 training
programmes, which averaged 50.43 hours of training per employee. In the same period,
HZL invested a total of 14,252 man-days in employee training: an average of 6.24 mandays per executive and an average of 2.24 man-days of training across all categories.
(Sterlite Industries India Ltd., Annual Report 2007-08, p.32) Keeping in mind this fact a
high disclosure was expected. However, for the year 2003-04, the disclosure of this
attribute was only 26.34% which increased to 38.68% in the year 2007-08.
Work related knowledge and entrepreneurial spirit which are eminent intangible
assets attributes to contribute towards value-creation in business and thus the wealth of
investors. However these attributes have hardly been reported by companies for both the
years of study. Low disclosure regarding entrepreneurial spirit of employees is in contrast
to the Guthrie and Petty (2000) study on Australian companies, where it was the most
frequently reported attribute of intellectual capital. In the present study most of
disclosures relating to this attribute are in qualitative form. Information in the annual
reports, regarding problem-solving approach, risk-taking attitude, client handling
techniques, innovative abilities of employees helps investors in judging the strengths of
an organisation.
Bata India Ltd. reported its entrepreneurial spirit as: To develop the culture of
entrepreneurship, the Company has encouraged existing employees to take the new stores
as a franchisee. (Bata India Ltd., Annual report 2007-08, p.14)

73

Thermax Ltd. reported that: We foster an entrepreneurial spirit throughout our

businesses and value the ability to foresee business opportunities early in the cycle and
act on them swiftly. Whether it is developing organic growth projects, making strategic
acquisitions or creating entrepreneurs from within, we ensure an entrepreneurial spirit at
the heart of our workplace. I would like to see more of this in the company as we grow,
where people take ownership of new ideas, new ways of doing the same thing and new
business models (Thermax Ltd., Annual report 2007-08, p. 4)
Ambuja Cements Ltd. reported on work- related knowledge of its employees as
Our trouble shooting and maintenance teams at Rabriyawas deserve acknowledgement
for the manner in which they applied innovation and ideas. They solved the problem of
SLC fan vibration and stopped losses in clinker production, estimated at around Rs 13
crores. (Ambuja cement Ltd., Annual report 2007-08, p.14).
The disclosure regarding the final attribute human resource accounting in this
category is very low for both the years of the study. Only Infosys Technologies Ltd.,
Satyam Computer Services Ltd. and Infotech Enterprises Ltd. belonging to software
industry have disclosed this item as additional information to shareholders for the two
years of the study. The companies namely Infosys Technologies Ltd. and Satyam
Computer Services Ltd. have used Lev & Schwartz model for computing the human
resource value. Both the companies have given detailed disclosure of this information by
computing present value of future earnings of the employees (human resources) and
various ratios to evaluate it. Table 5.2 gives the summary of human resource valuation
from the annual report of Infosys Technologies Ltd.

74

Table 5.2
Human Resource Valuation (Infosys Technologies Ltd, 2007-08)
in Rs. crore
2008

2007

Employees (No.)
Software professionals

85,013 68,156

Support

6,174

Total

4,085

91,187 72,241

Value of human resources

Software professionals

92,331 53,592

Support

6,490

3,860

Total

98,821 57,452

Total income

16,692 13,893

Total employee cost

8,878

Value-added

7,112

14,820 11,879

Net profits excluding exceptional items

4,659

3,861

Value of human resources per employee

1.08

0.8

Total income / human resources value (ratio)

0.17

0.24

Employee cost / human resources value (%)

12.4

Value-added / human resources value (ratio)

0.15

0.21

4.7

6.7

Ratios

Return on human resources value (%)

75

5.1.2

EXTERNAL CAPITAL
This intangible assets category represents relationship of a company with its

customers. suppliers, business partners, industry associates, market channels, investors,

society etc. This category is classified into eight sub-categories which are brands and
their description, brand valuation, distribution channels, markets & market share,
business collaboration, customers, customer satisfaction and social activities.
In todays market place, brands have primary importance to businesses. Many of
the worlds biggest companies derive more than half of their value because of their
brands. Building strong brands through effective marketing can have a very positive
impact on companys share price as well. Also development of brands helps companies in
enhancing their market share by securing repeated customer orders and building brand
loyalty. Companies in India have increased the use of annual reports as a medium to
inform outside world about their brands. Information disclosure regarding this has
incremented from 30.66% in 2003-04 to 44.24% in 2007-08. Widespread distribution of
annual reports, have made them as an effective means, by which companies can exchange
detailed information regarding all its brand portfolio, number of brands, brand logos etc.
in an economical and effective way. An appropriate example of this is Reliance Industries
Ltd. annual report for the year 2007-08 (Page 2) where they have given list of all its
brands and products.
Brand valuation is a tool employed by companies to manage their brands in order
to deliver optimal and sustainable value to its stakeholders. A brands value constitutes
to be an important component in the value of a company. It is a powerful way of
identifying areas of strength and weakness for the brand. Brand valuation has become a
means for communicating about brand in shareholder value terms, both internally and
externally. Investors nowadays prefer greater understanding and disclosure of brand
valuation and marketing performance information to improve their investment decisions.
Despite the significance of its communication externally, only Infosys Technologies Ltd.
and Satyam Computer Services Ltd. from software industry and Alembic Ltd. from
pharmaceutical industry have disclosed their brand valuation information in their annual
reports for the years 2003-04 and 2007-08 respectively. Low disclosures regarding brand
76

valuation in annual reports could be inferred from the fact that companies yet do not
realise the significance of brand value in determining its true overall value. The other
reasons could be that companies do not want to share this information with its
stakeholders because of its brand value being low. Satyam Computers Services Ltd.
reported on brand valuation as
As on March 31, 2008, the Brand value of the Company was Rs. 9,873 crores (US$2,467
mn.), as computed below:
i)

PBIT reduced by non-branded income was taken as profit for brand valuation.

ii)

Profits of previous two years were considered at present value and weightage
factor was applied to arrive at weighted profit.

iii)

5% of average capital employed was provided for non brand purposes.

iv)

Income Tax at current rate was provided.

v)

Brand multiple was estimated based on certain parameters and internal

evaluation.
Distribution channels are the means used to transfer goods or services from its
manufacturer to its end user. A strong distribution network constitutes to be an important
intangible asset for an organisation, as it signifies regular sales and constant orders.
Distribution has emerged as one of the few remaining areas where companies can build
and sustain competitive advantage. The information disclosure regarding distribution
channels by companies was 27.16% in 2003-04. With a 55.30% increase, it was 42.18%
in the year 2007-08. For example, Aditya Birla Nuvo Ltd. quotes To enhance its
competitive strength, BSLAMC more than doubled its distribution network to reach 78
branches and over 17,500 financial advisors in March 2008. (Aditya Birla Nuvo Ltd.,
Annual report 2007-08, p.16)
Another vital attribute in external capital category, is the market where a company
operates and its market share. Market share can be defined as the percentage of all sales
within a market that is held by one brand / product or company. Information concerning
markets and market share of a company helps its stakeholders to assess its products,
customers, regional coverage, strengths, longevity, growth potential etc. Disclosure
regarding this attribute is 48.35% in 2003-04. It increased to 59.88% in 2007-08. Within
77

the external capital category, this attribute is the most frequently reported attribute for
both years of the study (Table 5.4). The high disclosure could be due to the fact that
information regarding this attribute is usually collected by companys marketing
department. Thus, the marginal cost of preparing these data for external reporting
purposes is low.
Business collaborations is the second most reported intangible assets attribute in
this category, for both the years of study (Table 5.4). The importance placed to business
collaborations is not surprising as mutual alliances and other forms of collaborative
arrangements, of an organisation with its industry associates or strategic partners, are
becoming common way of conducting business and implementing growth strategies.
They also constitute to be an important source of competitive advantage. These joint
ventures help an organisation in improving its performance, increasing geographical
presence and diversifying into related businesses by developing alliances that
complement their core competencies. They also assist in gaining synergies in internal
operations and external opportunities. Effective reporting about business alliances
undertaken by a company helps its stakeholders in making sound investment decisions.
Disclosures regarding this attribute are 33.54% in 2003-04 which increased to 46.91% in
2007-08. Business collaboration is the top-scoring attribute in similar researches by
Guthrie et al (2006), Sujan & Abeysekera (2007) and Woodrock & Whiting (2009).
Also many companies equate their competitive advantage with their capacity to
deliver high levels of customer satisfaction. The products are changing, and so are
consumers. The companies have to make great efforts to improve and maintain good
relationships with their clients, who are increasingly demanding improved products and
services with accelerated delivery times and at lower prices. Satisfied customers are
challenging yet important intangible assets for an organisation For example Aruna
Sundarajan (Secretary IT Government of Kerela) appreciates Tulip Telecom Ltd I am
extremely satisfied with the network rolled out by Tulip Telecom Limited Ltd and wish
them continuous success in this field - (Tulip Telecom ltd., Annual report 2007-08, p.4).
But companies make meagre disclosure regarding this attribute in their annual reports.
Only 5.56% disclosure score in 2003-04 and 8.44% in 2007-08 has been reported
78

regarding this attribute. This non-disclosure pattern may be taken to indicate that only
companies with good customer feedbacks wants to mention this fact in their annual
report.
Further the information with regard to customers has a disclosure of 17.28% in
the year 2003-04 and 26.75% in the year 2007-08. This information helps the investors to
know about the major customers, reliance on major customers, customer base widespread
ness, new customers added, geographical distribution of customers etc of the respective
company. The investor analyses this information to draw conclusions on reputation,
credit worthiness and forward sales of the company. Though this information is
significant to investors its disclosure is not very high. The possible reason for these low
disclosures could be confidentiality of the information from its competitors. An
illustration of this attribute from the annual report of I-flex Solutions Ltd. is Our
operations and business depend on our relationships with a number of large customers.
Our Revenues from our top ten customers for fiscal 2008 were at 32% and 26% for fiscal
year 2007, as a percentage of our total revenues. The top-ten customers in our Services
Business contributed 42% of the total services revenues and the top ten customers in the
Products Business contributed 36% of the total products revenues during fiscal 2008. (Iflex Solutions ltd., Annual report 2007-08, p. 44).
As a social citizen, it is the duty of every company to be sensitive towards societal
needs or meet its social responsibilities. Companies should also contribute towards
environment protection and community development. For discharging the above
responsibilities companies are focusing on creation of healthcare, food security,
education and income generation, through the development of rural infrastructure,
empowerment and community outreach programmes. Fulfilling societal needs helps
company in attracting investors, recruiting employees, creating positive press image,
developing new products and services etc. It also makes a company more competitive by
reducing risk of sudden damage to reputation and sales. There is 29.01% disclosure
related to this attribute in the annual reports for the year 2003-04, which increased to
42.18% in 2007-08. Few companies have disclosed it in details as separate report
79

annexed as additional information to the shareholders while others have disclosed it as

information annexed to the management discussion and analysis and directors report
section of the annual report under the heading social concerns. A large number of
companies have also attached photographs of these corporate responsibility initiatives.
Tata Steel Ltd. reported its social responsibility as The Tata Steel Groups focus
in the area of corporate sustainability includes Social Sustainability; Environmental
Sustainability; Social Welfare; Sport; and Inclusive Growth. This last ensures that the
Groups successes are shared by all its constituents and stakeholders. (Tata Steel Ltd.,
Annual Report 2007-08, p- 67)
Annual report of Hindalco industries Ltd. mentions that. As a Group we have
been and continue to be extremely sensitive to societal needs. In our own small way, we
try to bring in some relief and make a difference to the lives of the weaker sections of
society who live close to our plants. We try to provide health care and raise life
expectancy, and reduce infant mortality. Through our endeavours in education, we lift
literacy rates. Through empowerment and training processes, we promote sustainable
livelihood. (Hindalco Industries Ltd., Annual report 2007-08, p.54)
5.1.3

INTERNAL CAPITAL
Internal

capital

is

defined

as

the

structure,

processes,

technologies,

methodologies, procedures, routines, systems and culture of an organisation. It comprises

the capabilities of a company, its infrastructure and organisational processes to
manufacture products and render services to the market. Intangible assets of this category
are idiosyncratic to a company and they constantly need to adapt to changing business
scenarios. These assets give the organization a unique advantage over its competitors as
these are not licensed to outsiders and are under companys control. There are seven
attributes in this category namely research activities, networking and information system,
organisation structure, corporate culture, patents, trademarks and copyrights.

80

Research Activities is the most disclosed attribute in internal capital category for
both the years of study (Table 5.4). They represent lifeblood for any organisation. They
help the business to innovate its products and services. They can further help in boosting
sales, increasing profitability, opening new markets, attracting best employees, finding
new business partners, attracting external finance etc. Disclosure for this attribute is
around 55.14% in the year 2003-04 which increased to 64.20% in the year 2007-08. Easy
availability of research related information could be a possible reason for its high
disclosure. Sun pharmaceutical Industries Ltd. has disclosed on this attribute as Our
teams at the R&D centres continue their task of building pipelines-developing cost
effective & efficient processes for dosage forms as well as APIs, scaling these up from the
labs to the plants, working on product development for demanding international markets,
developing ANDAs for a strong pipeline in the US. (Sun pharmaceutical Industries Ltd,
Annual report 2007-08, p.12)
Networking and information systems which is another internal capital attribute,
refers to businesss modus operandi and methods in relation to its internal processes and
administrative systems. These internal methods, procedures, routines, technologies are
roots of an organisation. The information on these disclosures being company specific,
internal and confidential, low disclosures is found on this attribute. Disclosures regarding
networking and information systems is 5.56% in 2003-04 whereas it is15.84% in 200708. Sterlite Industries Ltd. reports on its networking and information systems as From
1999, Sterlite has been operating in a SAP environment. As on date, we operate nine
modules of SAP: Finance and Costing, Production Planning, Plant Maintenance, Quality
Management, Sales and Distribution, Material Management, Human Capital
Management and Supplier Relationship Management. In addition, we also have a nonSAP based, web-enabled customer portal, where our customers can log in to extract
various information such as test certificates, account status, invoices, answers to
technical queries and so on. (Sterlite Industries Ltd., Annual report 2007-08, p.34)
Another internal capital attribute unique to any company, is its organisation
structure. A companys organisation structure determines the manner and extent to which
81

roles, power, and responsibilities are delegated, controlled, and coordinated, and how
information flows within the levels of management. A well managed and stable
organisation structure of any company is its important intangible assets and it depicts its
internal soundness and steadiness. The disclosure regarding this attribute is 2.26% in
2003-04 and 5.76% in 2007-08.
Corporate culture refers to the combined beliefs, values, ethics, procedures, and
atmosphere of an organization. It determines a companys dress code, work environment,
working hours, rules for getting ahead and getting promoted, how the business world is
viewed, what is valued, who is valued, and much more. Intangible assets like
organisation culture are hard for competitors to replicate. This internal capital attribute
has mostly been reported in qualitative form in the annual reports. This attribute has
10.08% disclosure in 2003-04 and 22.63% disclosure in 2007-08. This is the second most
reported attribute in internal capital category for the year 2007-08 (Table 5.4).
Other significant intellectual capital attributes in internal capital category are
patents, copyrights and trademarks. Patents have voluntary disclosure score of 10.91% in
2003-04 and 17.08 % in 2007-08. Likewise copyrights have disclosure score of 0.82%
which increased to 1.44% in 2007-08 and trademarks have disclosure score of 1.44% in
2003-04 followed by 7..00% in 2007-08. These intellectual property assets are usually
owned by a corporation and are valued based on their commercial potential. A
corporation can derive its revenues from licensing these assets to outside users. Larsen
and Toubro Ltd. reported that The Division has put serious and conscious efforts to
generate innovative ideas and create great value for the organisation by protecting them
through intellectual property rights. 2007-2008 has been another successful year on this
front, wherein 101 patent applications in addition to 31 Design Registrations and 11
Trademark filings have been made. (Larsen and Toubro Ltd., Annual Report 2007-08,
p.58)

82

5.1.4 INTANGIBLE ASSETS SCORESHEET

Intangible assets Scoresheet has been disclosed only in annual reports of Infosys
Technologies Ltd., Satyam Computer Services Ltd. and Infotech Enterprises Ltd. for both
the years. The intangible assets statement provided by these companies clearly points out
the companys intangible assets and their growth, by giving a comparative picture over
the years. It has been presented as additional information to the investors. These
companies strongly believe that the intangible assets scoresheet provides a tool to the
investors for evaluating their market worthiness. However lack of awareness among
corporates regarding the importance of intangible assets scoresheet in determining the
true value of their company could have resulted in its meagre disclosure. An illustration
of intangible assets scoresheet from the annual report of Infosys Technologies Ltd for the
year 2007-08 is given in Table 5.3:
5.1.5 MANDATORY DISCLSOURE REQUIREMENT
Accounting Standard 26 on Intangible assets issued by the Institute of Chartered
Accountants of India in 2002 specifies some disclosure requirements for companies
having intangible assets in their balance sheets. These requirements have been
categorised into four sub-heads which are:
(a)

Distinguish between internally generated and other intangible assets;

(b)

Details of amortisation rates, method and carrying amount at beginning and end
of period;

(c)

Classification of intangible assets; and

(d)

Other disclosures like pledging information, reasons for amortising over more
than 10 years etc.
The sub-head (a) above which is distinguishing between internally generated and

other intangible assets, has a disclosure score of 2.47% in the year 2003-04 and 8.64% in
the year 2007-08. Low disclosure score for both the years shows that not many
companies, which have intangible assets in their books, are differentiating between
internally generated and acquired intangible assets.

83

Table 5.3
Intangible Assets Scoresheet (Infosys Technologies Ltd., 2007-08)
External structure our
clients
2008

2007

Internal structure our

organization
2008 2007

Competence our people

2008

2007

Total employees
Added during
the year

91,187

72,241

Gross

33,177

30,946

Net

18,946

19,526

Laterals added

8,523

8,023

2,51,970

2,03,270

70

65

Growth / renewal
Revenue growth (%)
In US Dollar terms

35

44

In Rupee terms

20

46

Exports / total
revenue (%)

99

98

Clients
Total

538

500

Added during the year

170

160

Marqu clients
Total

113

114

Added during the year

24

26

Revenue contribution
(%)

46

44

Revenue Derived
No. of countries

58

54

R&D
R&D / total revenue
(%)
R&D / value-added
(%)

1.2

1.2

1.36

1.4

Technology investment
Investment /
revenue (%)
Investment / valueadded (%)

2.67

3.44

4.01

Total investment
Total investment /
total revenue (%)
Total investment /
value-added (%)

8.95

10.87 Gender classification (%)

10.08 12.71

Efficiency
Sales per support
staff

Sales / Client
7.76

6.18

US $ million

1.08

0.92

Rs. crore

31.0
3

27.79

Rs. crore

4.32

4.14

Sales & marketing

expenses / revenue
(%)

5.49

6.69

7.97

8.03

DSO (days)

72

64

4.71

5.18

Provision for debts /

revenues (%)

0.26

0.19

Repeat business (%)

97

95.3

Male

67.5

69.1

Female
No. of nonIndian national
employees

32.5

30.9

3,678

2,028

Value-added / employee (Rs. crore)

US $ million

General & admin

expenses / revenue
(%)
Average proportion
of support staff (%)

Staff education
index
Employees
No. of
nationalities

Stability
Average age of
support staff
29.4
(years)

30.9

Software
professionals
Total
employees

0.19

0.19

18

Value-added / employee ($ million)

Software
professionals
Total
employees
Average age of
employees
(years)

0.05

0.04

0.05

0.04

26

26

Cont

84

External structure our clients

No. of clients accounting
> 5% of revenue

Internal structure our organization

2008

2007

2008

2007

9.1

Top 5 clients (%)

20.9

19.4

Top 10 clients (%)

31.4

31.4

1 million dollar+

310

275

5 million dollar+

141

107

10 million dollar+

89

71

20 million dollar+

47

36

30 million dollar+

32

25

40 million dollar+

22

16

50 million dollar+

18

12

60 million dollar+

13

11

70 million dollar+

12

80 million dollar+

10

90 million dollar+

100 million dollar+

200 million dollar+

300 million dollar+

2008

2007

13.4

13.7

12.1

12.2

Attrition %
Excluding
subsidiaries
Excluding
involuntary
separation

Client concentration
Top client (%)

Competence our
people

Client distribution

The above figures are based on Indian GAAP consolidated financial statement

85

As-26 also requires that companies should give details of amortisation rates,
method and carrying amount at beginning and end of period. This requirement has been
fulfilled by all the companies which had intangible assets as a part of their balance sheet.
Disclosure score for this sub-head is 37.86% in 2003-04 and 72.84% in 2007-08.
Classification of intangible assets into separate classes is also one of the requisite
of AS 26. For the year 2003-04, out of 37.86% companies having intangible assets in
their balance sheet, 35.80% companies are categorising them into classes like software,
brand, licences etc. Similarly for the year 2007-08, 69.96% companies are categorising
their intangible assets, out of a total of 72.84% of sample companies which recognise
intangible assets in their books of accounts.
Other disclosures like pledging information, reasons for amortising over more
than 10 years etc. have achieved a score of 0.82% in 2003-04 and 2.88% in 2007-08.
Low disclosure for this sub-head could be due to limited applicability of this disclosure
requirement.
Intangible assets Valuation
In India there is an increasing awareness among corporate to disclose and value
their intangible assets. Intangible assets Valuation means assigning a fair monetary value
to intangible assets (whether internally generated or acquired from outside) in a company.
As mentioned in research methodology a score of 2 has been assigned to companies
valuing their intangible assets and 0 for not valuing them. Accordingly, this category
has received a disclosure score of 37.86% in 2003-04 and 72.84% in 2007-08.

86

5.1.6 SUMMARY OF MOST REPORTED ATTRIBUTES

Table 5.4 illustrates the most reported intangible assets attributes per category.
Table 5.4
Intangible assets attributes most reported per category
Indian Companies (2003-04)
Category
Attribute
Number of
Human
Capital

employees

Indian Companies (2007-08)

weighted
average
disclosure
score

%
Disclo
sure

294

60.49

Attribute

weighted
average
disclosure
score

%
Disclo
sure

Number of employees

346

71.19

207

42.59

291

59.88

228

46.91

Professional
Compensation

155

31.89

qualification and
experience

Market share,
External

markets

Capital

Business
collaboration

235

48.35

163

33.54

Market share,
markets
Business
collaborations

Internal

Research projects

268

55.14

Research projects

312

64.2

Capital

Patents

53

10.91

Corporate Culture

110

22.63

1.23

1.23

184

37.86

354

72.84

177

36.01

Intangible
assets
Scoresheet

Intangible assets
Scoresheet
Intangible assets
valuation

Intangible assets
Scoresheet
Intangible assets
valuation

Mandatory

Details of

Details of amortisation

Disclosure

amortisation rates,

rates, method and

Requirement

method and carrying

92

18.93

carrying amount at

amount at beginning

beginning and end of

and end of period

period

87

The attribute Number of employees and Compensation for the year 2003-04
whereas attribute Number of employees and Professional qualification and
experience for the year 2007-08 are the most reported attributes from the human capital
category.
Market share, markets and Business collaboration are most highly disclosed
attributes in external capital category for both the years of study.
Further in internal capital category, Research projects and Patents for the
year 2003-04 plus Research projects and Corporate culture for the year 2007-08, are
most reported intangible assets.
Similarly for mandatory disclosure requirement category, Intangible assets
valuation and Details of amortisation rates, method and carrying amount at beginning
and end of period are most disclosed attributes in annual reports.
5.2

NATURE OF INTANGIBLE ASSETS DISCLOSURE

After explaining in detail the extent of disclosure it is very essential to discuss

about the nature of reporting of intangible assets as well. Nature of intangible assets
disclosure involves distinguishing between qualitative and quantitative nature of
reporting. The percentage number of companies as mentioned in the table 5.5 has been
calculated by dividing the total number of companies disclosing an attribute in qualitative
or quantitative form by total number of sample companies (which is 243). For example
training and development attribute for the year 2003-04 has been disclosed by 20.58%
companies in qualitative form and 16.05% in quantitative form. Table 5.5 depicts the
nature of intangible assets disclosure in annual reports for both years of the study.

88

Table 5.5
Nature of intangible assets disclosure
Number of companies (in percent)
Attributes

2003-04

2007-08

Qualitative
Disclosure

Quantitative
Disclosure

Qualitative
Disclosure

Quantitative
Disclosure

-Number

0.00

60.49

2.47

69.96

-Gender

0.82

0.00

1.65

1.23

20.16

20.58

7.00

39.09

21.81

20.99

8.64

37.45

Training & Development

20.58

16.05

39.51

18.93

Work related knowledge

0.00

0.82

2.88

0.41

Entrepreneurial Spirit

0.41

0.00

4.12

0.41

Human resource accounting

0.00

1.23

0.00

1.23

Brands and their specification

25.10

18.11

26.75

30.86

Brand valuation

0.00

1.23

0.00

1.23

Distribution channels

18.93

17.70

29.22

27.57

Market share, markets

31.69

32.51

34.16

42.80

Business collaboration

15.23

25.93

19.75

37.04

Customer satisfaction

2.88

4.12

10.29

3.29

Customer information (no.)

4.94

14.81

7.41

23.05

Social Activities

21.81

18.11

23.46

30.45

Research projects

11.52

49.38

12.35

58.02

Networking and information systems

8.64

1.23

20.99

5.35

Organisation Structure

1.23

1.65

4.12

3.70

HUMAN CAPITAL
Employees

-Professional qualification and

Experience
-Compensation

EXTERNAL CAPITAL

INTERNAL CAPITAL

Cont
Cont
89

Number of companies (in percent)

Attributes

2003-04

2007-08

Qualitative
Disclosure
19.34

Quantitative
Disclosure
0.41

Qualitative
Disclosure
43.62

Quantitative
Disclosure
0.82

Patents

4.53

8.64

2.88

15.64

Copyrights

0.82

0.41

1.23

0.82

Trademarks

1.23

0.82

2.47

5.76

INTANGIBLE ASSETS SCORESHEET

0.00

1.23

0.00

1.23

2.88

N.A.

8.64

N.A.

period

38.27

N.A.

72.84

N.A.

Classification of intangible assets

36.21

N.A.

69.96

N.A.

more than 10 years etc

1.23

N.A.

2.88

N.A.

Intangible assets valuation

0.00

38.27

0.00

72.84

Corporate culture

MANDATORY DISCLOSURE
REQUIREMENTS
Distinguish between internally generated
and other intangible assets
Details of amortisation rates, method and
carrying amount at beginning and end of

Other disclosures like pledging

information, reasons for amortising over

90

Table 5.5 illustrates that nature of disclosures (both qualitative and quantitative)
has improved in the year 2007-08 as compared to the year 2003-04.
For Number of employees attribute in human capital category, 60.49% companies
were disclosing in quantitative form in the year 2003-04 which increased to 69.96% in
2007-08. Similarly in context of professional qualification and experience of employees,
20.16% were reporting in qualitative form and 20.58% in quantitative form in the year
2003-04. In the year 2007-08, companies reporting in qualitative form remained only 7%
and it seems they shifted to quantitative disclosures (39.09%). Likewise is the reporting
of attributes compensation, training and development and entrepreneurial spirit in
human capital category, where the quantitative disclosures have increased.
In external capital category, the attribute brands and its specification is reported
by 25.10% companies in qualitative form and 18.11% companies in quantitative form in
the year 2003-04. These numbers increased to 26.75% and 30.86% respectively in the
year 2007-08. Information concerning distribution channels which is reported by 17.70%
companies in quantitative form in year 2003-04, increased to 27.57% companies in 200708. Disclosures regarding other attributes of external capital also improved in year 200708 in comparison to year 2003-04.
Improved disclosures can be noticed for all the attributes of internal capital. For
the corporate culture attribute majority of the companies are reporting this attribute in
qualitative form. Difficulty in its quantification could have motivated for its reporting
mainly in narrative form. The percentages are 19.34% in the year 2003-04 and 43.62% in
2007-08.
As explained in chapter-3 on research methodology, the information regarding the
first four attributes of mandatory disclosure requirement category were given the score of
either 1 or 0 for its presence or absence in the annual report respectively.
Accordingly, quantitative disclosure column is not applicable for the four sub-heads in
this category. Qualitative disclosures of these attributes have improved in the year 200708 in contrast to the year 2003-04.

91

Intangible assets valuation information has been provided by almost double the
number of companies in 2007-08 as compared to year 2003-04. While 38.27% companies
were valuing its intangibles in year 2003-04, it increased to 72.84% companies in the
year 2007-08.
5.3

CATEGORY-WISE ANALYSIS
In this section, aggregated disclosure scores of intangible assets for each of the

five categories i.e. human capital, external capital and internal capital, intangible assets
scoresheet and mandatory disclosure requirements has been calculated. This is to
determine the highest reported category out of the five categories mentioned above for
the year 2003-04 and 2007-08. Table 5.6 and figure 5.1 & 5.2 shows the different
categories of intangible assets disclosure index, total score for each category and score
achieved by each category (actual score and percentage) for both years.
Table 5.6
Category wise Disclosures
Categories
2003-04 2007-08
Human Capital

30%

27%

External Capital

38%

36%

Internal Capital

17%

18%

Intangible assets scoresheet

0%

0%

Mandatory Disclosure Requirements

15%

20%

Note: Disclosure percentages have been calculated using the weighted means

92

Figure 5.1
Category-wise intangible assets disclosure for the year 2003-04
15%
0%

30%

17%

38%

Human Capital
Internal Capital
Mandatory Disclosure Requirements

External Capital
Intangible assets scoresheet

Figure 5.2
Category-wise intangible assets disclosure for the year 2007-08

20%

27%

0%

18%

36%

Human Capital
Internal Capital
Mandatory Disclosure Requirements

External Capital
Intangible assets scoresheet

93

The results reveal external capital to be the most disclosed intangible assets
category for both the years of the study. It has disclosure of 38% in the year 2003-04 and
36% in the year 2007-08. The studies from Australia (Guthrie & Petty, 2000); Ireland
(Brennan, 2001); Italy (Bozzolan et al, 2003); South Africa (April et al, 2003); Malaysia
(Goh & Lim, 2004); Sri Lanka (Abeysekera & Guthrie, 2005); Spain (Oliveras &
Kasperskaya, 2005); New Zealand (Wong & Gardner, 2004) also showed external capital
to be most frequently reported intangible assets category. This dominance of external
capital disclosures is due to the pivotal role of these disclosures in influencing
stakeholder decisions. Therefore in order to show their edge over their competitors the
companies might want to emphasise relations with their customers and other
organisations, and promote their brand, which are all attributes of external capital.
Guthrie and Petty (2000) explained skew ness towards external disclosure because of
increased emphasis in recent years on rationalising distribution channels, reconfiguring a
firms value chain and reassessing customer value.
External capital category is closely followed by human capital category, which
has disclosure of 30% in 2003-04 and 27% in 2007-08 The reason for high disclosures on
human capital could be that such disclosure is helpful for companies in attracting the
talented employees and companies take pride in their high calibre management. The
internal capital category has a disclosure of 17% in 2003-04 which increased to 18% in
2007-08. Low disclosures in internal capital category as compared to external and human
capital could be motivated by companys need to maintain its confidentiality on business
processes, policies, systems etc over its competitors.
Further, the mandatory disclosure requirement categorys share in overall
disclosure has increased from 15% in 2003-04 to 20% in 2007-08. This implies increased
awareness among Indian corporate houses regarding worth of intangible assets and their
rising commitment to value these assets in their financial statements. The category
intangible assets scoresheet has negligible disclosure score for both the years.
To summarise the disclosure scores for each of the five categories have shown
increasing trends in the year 2007-08 over the year 2003-04.

94

5.4 COMPARISON WITH THE PAST RESEARCH

As stated in the chapter on Review of Literature3, similar studies on reporting of
intangible assets have been conducted in countries like South Africa, Italy, Ireland,
Malaysia, Australia, New Zealand, UK, Portugal etc. All these studies covered only the
voluntary reporting aspect of intangible assets, by considering the three categories i.e.
human capital, external capital and internal capital. In the present study, to assist
comparison with these previous researches only three categories have been considered for
financial year 2007-08. The Table 5.7 compares the category-wise results (three
categories) of this research with past research.

Table 5.7
Comparison with Past Research
Study

Country

Guthrie et al (1999)

Australia

40

30

30

Brennan (2001)

Ireland

40

30

30

Bozzolan et al (2003)

Italy

49

30

21

April et al (2003)

South Africa

40

30

30

Goh and Lim (2004)

Malaysia

41

37

22

Vandamaele et al (2005) Netherlands,

Sweden and UK

40

30

30

Oliveira et al (2006)

Portugal

48

25

27

Steenkamp (2007)

New Zealand

36

11

53

Sujan and Abeysekera

(2007)

Australia

48

31

21

Ali et al (2008)

Bangladesh

32

45

23

Present study4

India

45

22

33

External Capital Internal Capital Human Capital

(percent)
(percent)
(percent)

For Details, see Chapter II, Review of Literature, pp. 21.

In order to compare the results of the present study with past research mandatory disclosure requirements category and
intangible assets score sheet category have been excluded for calculating the percentages

95

As is clear from the table, external capital is the highest reported intangible assets
category for most of the studies. The results drawn from the current study covering
Indian companies also shows external capital as the highest disclosed intangible assets
category followed by human capital and internal capital category. Internal capital is least
reported and this is similar to the study on intellectual capital disclosure conducted in
Portugal (Oliveira et al, 2006) and New Zealand (Steenkamp, 2007).
SECTION-II
5.5

COMPANY- WISE ANALYSIS

The company-wise disclosure score has been calculated by dividing the total

weighted disclosure index score obtained by a company during a particular year by the
maximum score for the company (which is 54).The disclosure score has been calculated
in percentages so as to make the disclosure of the companies comparable.
Table 5.8 explains the company-wise disclosure of intangible assets for the years
2003-04 and 2007-08 respectively. The companies have been ranked in the descending
order of their 2003-04 disclosure score. The respective 2007-08 scores have been
mentioned corresponding to their 2003-04 scorecard.
An analysis of this table reveals that disclosure score has improved in case of 191
companies decreased in case of 35 companies and remained constant for 17 companies
in the year 2003-04 and 2007-08.
Infosys Technologies Ltd. occupies highest position in intangible assets disclosure
for both years of the study. The companys disclosure score of 68.52% in the year 200304 has increased to 81.48% in the year 2007-08. The highest disclosure maintained by
Infosys Technologies Ltd. (68.52) is followed by Hero Honda Motors Ltd (53.70),
Satyam Computer Services Ltd. (51.85%), Tata Steel Ltd. (46.30%) Tata Power Ltd.
(44.44%), Dabur India Ltd. (44.44%), Max India Ltd. (44.44%), ICICI Bank Ltd.
(40.74%). Indian Hotels Co Ltd , Asian Paints Ltd., Voltas Ltd. , Asahi India Glass Ltd ,
3i Infotech Ltd., Reliance Industries Ltd. (38.89%), Larsen and Toubro Ltd., Dr. Reddy
Ltd., Marico Ltd., Alembic Pharmaceuticals Ltd., Ranbaxy Ltd. ( 37.04%) for the year
2003-04.

96

A wide variation can be observed in the disclosure scores of companies for the
year 2007-08 over the year 2003-04. Table 5.6 exhibits that the highest disclosure score
has been achieved by Infosys Technologies Ltd. (81.48%) is followed by Satyam
Computer Services Ltd. ( 61.11%), Larsen and Toubro Ltd. ( 57.41%), Dr. Reddy Ltd.
(55.56%), Tata Steel Ltd (53.70), Max India Ltd., Wipro Ltd., JSW Steel Ltd. (51.85%),
Orchid Chemicals & Pharmaceuticals Ltd. ( 50%), Reliance Industries Ltd., SKF India
Ltd. (48.15%), ACC Ltd. (46.30%), Glaxosmithkline Ltd., KPIT Cummins Infosystems
Ltd. for the year 2007-08.
The table 5.8 also highlights that Infosys Technologies Ltd., Satyam Computer
services Ltd., Tata Steel Ltd., Max India Ltd., Reliance Industries Ltd., Larsen and
Toubro Ltd., Dr. Reddy Ltd., Wipro Ltd. are among top 10 companies, for disclosing
their intangible assets for the years 2003-04 as well as 2007-08.
HBL Power Systems Ltd., Ganesh Housing Corporation Ltd., Amtek Auto Ltd.,
Jyoti Structures Ltd., Bhushan Steel Ltd., JM Financial Ltd., Gujurat Fluorochemicals
Ltd., Lanco Infratech Ltd. have zero disclosure score for the year 2003-04. The disclosure
score for these companies significantly improved upto 22.22% in the year 2007-08.
The companies having least disclosure score for the year 2007-08 are Rei agro
Ltd.( 1.85%), Essar Shipping Ltd. (1.85%), Rajesh Exports Ltd. (3.7%), Reliance
Industrial Infrastructure Ltd., Ahmednagar Forgings Ltd., Ruchi Infrastructure Ltd.,
Ganesh Housing corporation Ltd., Ratnamani Metals & Tubes Ltd (5.56%), Madras
Cements Ltd. (7.41%), Timken India Ltd., Oriental Hotels Ltd., Prism Cement Ltd.,
Shanthi Gears Ltd., Era Infra Engineering Ltd., Jyoti Structures Ltd., Deepak Fertilisers
& Petrochemicals Corporation Ltd. (9.26%). However, none of the companies have zero
disclosure score for the year 2007-08.

97

Table 5.8
Company-wise Analysis
2003-04
Name of company

2007-08

Percentage
change in
disclosure
score in the
year 2007-08
over 2003-04

Disclosure
score (%)

Rank

Disclosure
score (%)

Rank

Infosys Technologies

68.52

81.48

18.92

Hero Honda Motors

53.7

33.33

77

-37.93

Satyam Computer Services

51.85

61.11

17.86

Tata Steel

46.3

53.7

16

Tata Power

44.44

42.59

23

-4.17

Dabur India

44.44

42.59

23

-4.17

Max India

44.44

53.7

20.83

ICICI Bank

40.74

38.89

39

-4.55

Indian Hotels Co.

40.74

38.89

39

-4.55

Asian Paints

40.74

22.22

163

-45.45

Voltas

40.74

38.89

39

-4.55

Asahi India Glass

40.74

33.33

77

-18.18

3I Infotech

40.74

40.74

33

Reliance Industries

38.89

14

50

28.57

Larsen & Toubro

38.89

14

57.41

47.62

Dr. Reddy

38.89

14

55.56

42.86

Marico

38.89

14

42.59

23

9.52

Alembic

38.89

14

33.33

77

-14.29

Ranbaxy

37.04

19

44.44

19

20

Glenmark Pharmaceuticals

37.04

19

29.63

107

-20

Piramal Healthcare

37.04

19

40.74

33

10

SREI Infrastructure Finance

37.04

19

38.89

39

Zensar Technologies

37.04

19

27.78

117

-25

Wipro

35.19

24

53.7

52.63
Cont

98

2003-04
Name of company

2007-08

Percentage
change in
disclosure
score in the
year 2007-08
over 2003-04

Disclosure
score (%)

Rank

Disclosure
score (%)

Rank

Grasim Industries

35.19

24

35.19

59

Hindalco Industries

35.19

24

33.33

77

-5.26

Aditya Birla Nuvo

35.19

24

44.44

19

26.32

Ashok Leyland

35.19

24

31.48

88

-10.53

Tata Tea

35.19

24

35.19

59

Cadila Healthcare

35.19

24

33.33

77

-5.26

Matrix Laboratories

35.19

24

35.19

59

Godrej Consumer Products

35.19

24

35.19

59

Shoppers Stop

35.19

24

35.19

59

Hexaware Technologies

35.19

24

37.04

50

5.26

Hindustan Unilever .

33.33

35

38.89

39

16.67

HCL Technologies

33.33

35

27.78

117

-16.67

Moser Baer India

33.33

35

25.93

136

-22.22

HCL Infosystems

33.33

35

42.59

23

27.78

Carborundum Universal

33.33

35

35.19

59

5.56

Sasken Communication Technologies

33.33

35

40.74

33

22.22

Suzlon energy

31.48

41

24.07

150

-23.53

Ambuja Cements

31.48

41

42.59

23

35.29

Patni Computer Systems .

31.48

41

33.33

77

5.88

Subex Azure

31.48

41

29.63

107

-5.88

Infotech Enterprises

31.48

41

48.15

11

52.94

Bata India

31.48

41

35.19

59

11.76

Kennametal India

31.48

41

37.04

50

17.65

Bayer Cropscience

31.48

41

24.07

150

-23.53

Tata Motors

29.63

49

44.44

19

50

ABB .

29.63

49

25.93

136

-12.5

Godrej Industries

29.63

49

33.33

77

12.5
Cont

99

2003-04
Name of company

2007-08

Percentage
change in
disclosure
score in the
year 2007-08
over 2003-04

Disclosure
score (%)

Rank

Disclosure
score (%)

Rank

Tata Teleservices (Maharashtra)

29.63

49

42.59

23

43.75

Chambal Fertilisers & Chemicals

29.63

49

37.04

50

25

Balaji Telefilms

29.63

49

29.63

107

Cranes Software International

29.63

49

35.19

59

18.75

Sterlite Industries (India)

27.78

56

27.78

117

Sun Pharmaceuticals

27.78

56

40.74

33

46.67

Thermax

27.78

56

29.63

107

6.67

Mphasis

27.78

56

24.07

150

-13.33

Biocon

27.78

56

48.15

11

73.33

Jain Irrigation Systems

27.78

56

40.74

33

46.67

Gujarat Gas Co.

27.78

56

29.63

107

6.67

Triveni Engineering & Industries .

27.78

56

27.78

117

Sundaram-Clayton

27.78

56

18.52

183

-33.33

Orchid chemicals and

pharmaceuticals

27.78

56

50

80

Hinduja TMT

27.78

56

16.67

195

-40

United Spirits

25.93

67

33.33

77

28.57

Cummins India

25.93

67

25.93

136

Aurobindo Pharma

25.93

67

25.93

136

TVS Motor Co.

25.93

67

29.63

107

14.29

Aptech

25.93

67

37.04

50

42.86

Kotak Mahindra Bank

24.07

72

35.19

59

46.15

Cambridge Solutions

24.07

72

35.19

59

46.15

Lupin

24.07

72

42.59

23

76.92

Aventis Pharmaceuticals

24.07

72

33.33

77

38.46

Crisil .

24.07

72

31.48

88

30.77

Bombay Dyeing & Mfg. Co.

24.07

72

31.48

88

30.77
Cont

100

2003-04
Name of company

2007-08

Percentage
change in
disclosure
score in the
year 2007-08
over 2003-04

Disclosure
score (%)

Rank

Disclosure
score (%)

Rank

Torrent Pharmaceuticals

24.07

72

25.93

136

7.69

IPCA Laboratories

24.07

72

31.48

88

30.77

KPIT Cummins Infosystems

24.07

72

46.3

14

92.31

Thomas Cook (India) .

24.07

72

35.19

59

46.15

MERCK

24.07

72

18.52

183

-23.08

Siemens .

22.22

83

37.04

50

66.67

Jubilant Organsis

22.22

83

38.89

39

75

Glaxo Smith Kline

22.22

83

46.3

14

108.33

Punjab Tractors

22.22

83

27.78

117

25

Polaris Software Lab

22.22

83

27.78

117

25

GHCL

22.22

83

20.37

174

-8.33

Himatsingka Seide

22.22

83

31.48

88

41.67

Nagarjuna Fertilizers & Chemicals

22.22

83

18.52

183

-16.67

SRF

22.22

83

31.48

88

41.67

TV Today Network

22.22

83

24.07

150

8.33

Cholamandalam DBS Finance

22.22

83

31.48

88

41.67

VST Industries

22.22

83

25.93

136

16.67

ACC .

20.37

95

46.3

14

127.27

Reliance Energy

20.37

95

31.48

88

54.55

Exide Industries

20.37

95

27.78

117

36.36

SKF India .

20.37

95

48.15

11

136.36

DCM Shriram Consolidated

20.37

95

38.89

39

90.91

Plethico Pharmaceuticals

20.37

95

27.78

117

36.36

Sundaram Finance

20.37

95

14.81

202

-27.27

Tube Investments of India

20.37

95

38.89

39

90.91

Dabur Pharmaceuticals

20.37

95

35.19

59

72.73

Strides Acrolab

20.37

95

24.07

150

18.18
Cont

101

2003-04
Name of company

2007-08

Percentage
change in
disclosure
score in the
year 2007-08
over 2003-04

Disclosure
score (%)

Rank

Disclosure
score (%)

Rank

Sonata Software

20.37

95

24.07

150

18.18

Zee Entertainment Enterprises

18.52

106

33.33

77

80

United Phosphorus

18.52

106

31.48

88

70

Tata Chemicals

18.52

106

35.19

59

90

Madras Cements

18.52

106

7.41

229

-60

Havells India

18.52

106

42.59

23

130

Astra Zeneca Pharma India

18.52

106

27.78

117

50

Berger Paints India

18.52

106

38.89

39

110

Nucleus Software Exports

18.52

106

27.78

117

50

Emami

18.52

106

22.22

163

20

FAG Bearings India

18.52

106

25.93

136

40

Himachal Futuristic Communications

18.52

106

12.96

207

-30

Vardhman Textiles

18.52

106

24.07

150

30

Eicher Motors

18.52

106

35.19

59

90

Gati

18.52

106

20.37

174

10

JB Chemicals & Pharmaceuticals

18.52

106

31.48

88

70

Tech Mahindra

16.67

121

25.93

136

55.56

Wockhardt

16.67

121

29.63

107

77.78

Shree Cement

16.67

121

46.3

14

177.78

Gammon India

16.67

121

37.04

50

122.22

Apollo Tyres

16.67

121

37.04

50

122.22

Gulf Oil Corporation

16.67

121

24.07

150

44.44

Nesco

16.67

121

27.78

117

66.67

Geometric

16.67

121

35.19

59

111.11

FDC

16.67

121

14.81

202

-11.11

Hindustan Zinc

14.81

130

38.89

39

162.5

Bharat Forge

14.81

130

37.04

50

150
Cont

102

2003-04
Name of company

2007-08

Percentage
change in
disclosure
score in the
year 2007-08
over 2003-04

Disclosure
score (%)

Rank

Disclosure
score (%)

Rank

Century Textiles & Industries

14.81

130

31.48

88

112.5

Lakshmi Machine Works

14.81

130

35.19

59

137.5

Jai Corp

14.81

130

31.48

88

112.5

Castrol India

14.81

130

24.07

150

62.5

Sintex Industries

14.81

130

29.63

107

100

Nirma

14.81

130

20.37

174

37.5

ING Vysya Bank

14.81

130

31.48

88

112.5

Raymond

14.81

130

25.93

136

75

CMC

14.81

130

14.81

202

Balrampur Chini Mills

14.81

130

24.07

150

62.5

Simplex Infrastructures

14.81

130

22.22

163

50

Monsanto India

14.81

130

42.59

23

187.5

Uflex

14.81

130

29.63

107

100

Coromandel Fertilisers

14.81

130

27.78

117

87.5

Tata Elxsi

14.81

130

35.19

59

137.5

Emco

14.81

130

40.74

33

175

HFCL Infotel

14.81

130

31.48

88

112.5

Grindwell Norton

14.81

130

27.78

117

87.5

HDFC Bank

12.96

150

27.78

117

114.29

Axis Bank

12.96

150

33.33

77

157.14

Pidilite Industries

12.96

150

31.48

88

142.86

Kirloskar Oil Engines

12.96

150

31.48

88

142.86

Dishman Pharmaceuticals

12.96

150

27.78

117

114.29

Asian Hotels

12.96

150

12.96

207

Ashapura Minechem

12.96

150

16.67

195

28.57

Bharat Bijlee

12.96

150

12.96

207

KSB Pumps

12.96

150

18.52

183

42.86
Cont

103

2003-04
Name of company

2007-08

Percentage
change in
disclosure
score in the
year 2007-08
over 2003-04

Disclosure
score (%)

Rank

Disclosure
score (%)

Rank

Deepak Fertilisers & Petrochemicals

Corporation

12.96

150

9.26

224

-28.57

Mastek

12.96

150

20.37

174

57.14

Graphite India

12.96

150

18.52

183

42.86

JSW Steel

11.11

162

51.85

366.67

Divi's Laboratories

11.11

162

20.37

174

83.33

Great Eastern Shipping Co.

11.11

162

12.96

207

16.67

Alstom Projects India

11.11

162

27.78

117

150

EIH

11.11

162

16.67

195

50

Ansal Properties & Infrastructure

11.11

162

22.22

163

100

Shriram Transport Finance Co.

11.11

162

31.48

88

183.33

P&G

11.11

162

22.22

163

100

GTL .

11.11

162

44.44

19

300

Mercator Lines

11.11

162

25.93

136

133.33

Electrosteel Castings

11.11

162

16.67

195

50

Timken India .

11.11

162

7.41

229

-33.33

HEG

11.11

162

24.07

150

116.67

Oriental Hotels

11.11

162

7.41

229

-33.33

Zuari Industries

11.11

162

11.11

217

Cipla

9.26

177

18.52

183

100

Industrial Development Bank of India

9.26

177

25.93

136

180

Kalpataru Power Transmission

9.26

177

11.11

217

20

Hindustan Construction Co.

9.26

177

29.63

107

220

Blue Star

9.26

177

46.3

14

400

Nava Bharat Ventures

9.26

177

24.07

150

160

Arvind Mills

9.26

177

16.67

195

80

Sical Logistics

9.26

177

22.22

163

140
Cont

104

2003-04
Name of company

2007-08

Percentage
change in
disclosure
score in the
year 2007-08
over 2003-04

Disclosure
score (%)

Rank

Disclosure
score (%)

Rank

Indo Rama Synthetics (India)

9.26

177

27.78

117

200

Binani Industries

9.26

177

12.96

207

40

Kirloskar Pneumatic Co.

9.26

177

18.52

183

100

Kesoram Industries

7.41

188

18.52

183

150

Karur Vysya Bank

7.41

188

11.11

217

50

Shree Renuka Sugars .

7.41

188

31.48

88

325

Wyeth

7.41

188

18.52

183

150

Shriram City Union Finance

7.41

188

20.37

174

175

Astra Microwave Products

7.41

188

11.11

217

50

Abbott India

7.41

188

16.67

195

125

Apar Industries

7.41

188

18.52

183

150

Noida Toll Bridge Company

7.41

188

11.11

217

50

Adani Enterprises

5.56

197

25.93

136

366.67

Amtek Auto

5.56

197

9.26

224

66.67

India Cements

5.56

197

18.52

183

233.33

Nagarjuna Construction Co.

5.56

197

18.52

183

233.33

Prism Cement

5.56

197

7.41

229

33.33

Rei Agro

5.56

197

1.85

242

-66.67

Shiv-Vani Oil & Gas Exploration

Services .

5.56

197

9.26

224

66.67

Asian Electronics

5.56

197

38.89

39

600

Unichem Laboratories

5.56

197

27.78

117

400

Champagne Indage

5.56

197

11.11

217

100

Vaibhav Gems

5.56

197

12.96

207

133.33

Reliance Capital

3.7

208

35.19

59

850

Essar steel

3.7

208

14.81

202

300

Tulip IT Services

3.7

208

27.78

117

650
Cont

105

2003-04
Name of company

2007-08

Percentage
change in
disclosure
score in the
year 2007-08
over 2003-04

Disclosure
score (%)

Rank

Disclosure
score (%)

Rank

Rajesh Exports

3.7

208

3.7

237

Essar Shipping

3.7

208

1.85

242

-50

Honeywell Automation India

3.7

208

12.96

207

250

Dalmia Cement (Bharat)

3.7

208

22.22

163

500

Bajaj Auto Finance

3.7

208

9.26

224

150

Alok Industries

3.7

208

37.04

50

900

Hindustan Oil Exploration Co.

3.7

208

12.96

207

250

Reliance Industrial Infrastructure

3.7

208

3.7

237

Mysore Cements

3.7

208

24.07

150

550

JK Lakshmi Cement

3.7

208

12.96

207

250

Esab India .

3.7

208

14.81

202

300

OCL India

3.7

208

16.67

195

350

Meghmani Organics

3.7

208

22.22

163

500

Shanthi Gears

3.7

208

7.41

229

100

Kirloskar Ferrous Industries

3.7

208

12.96

207

250

Federal-Mogul Goetze (India)

3.7

208

20.37

174

450

Areva T&D India

1.85

227

31.48

88

1600

Binani Cement

1.85

227

25.93

136

1300

Asian Star Co.

1.85

227

20.37

174

1000

KS Oils

1.85

227

42.59

23

2200

ICSA (India)

1.85

227

25.93

136

1300

Era Infra Engineering

1.85

227

7.41

229

300

Ahmednagar Forgings

1.85

227

3.7

237

100

Ratnamani Metals & Tubes

1.85

227

5.56

236

200

Ruchi Infrastructure

1.85

227

3.7

237

100

Lanco Infratech

236

22.22

163

NA

Gujarat Fluorochemicals

236

20.37

174

NA
Cont

106

2003-04
Name of company

2007-08

Percentage
change in
disclosure
score in the
year 2007-08
over 2003-04

Disclosure
score (%)

Rank

Disclosure
score (%)

Rank

JM Financial

236

22.22

163

NA

Bhushan Steel

236

22.22

163

NA

Jyoti Structures

236

7.41

229

NA

Amtek India

236

9.26

224

NA

Ganesh Housing Corpn.

236

3.7

237

NA

HBL Power Systems

236

11.11

217

NA

107

The above table reveals that the range of disclosure score of the companies varies
from zero to 68.52% for the year 2003-04 and from 1.85% to 81.48% for the year 200708. Infosys Technologies has occupied first position for both years of the study. Infosys
Technologies was the first Indian company to incorporate additional disclosures like
Intangible assets Scoresheet, Brand Valuation, Human Resource Accounting in its annual
reports.
Most of the intangible assets information is given in Management Discussion and
Analysis section of annual report.
In addition to the above, the average number of attributes reported per company
(total number of attributes reported by sample companies divided by total number of
companies) is 7 in the year 2003-04 and 10 in the year 2007-08. Also the maximum and
the minimum number of attributes reported for any one company is 23 & 0 for the year
2003-04 and 26 & 1 for the year 2007-08 respectively
Table 5.9 gives the classification of companies according to their disclosure
percentages for the year 2003-04 and 2007-08
Table 5.9
Classification of Companies According to the Disclosure Percentages
Number of companies
Disclosure Percentages
2003-04

2007-08

0-20

149

70

20-40

81

135

40-60

12

36

60-80

Above 80

243

243

Table 5.9 exhibits that a large number of companies have disclosure score range
between 0-20 percent for the year 2003-04. While in the year 2007-08, the number of
108

companies having disclosure score range between 0-20 percent has declined and shifted
to higher disclosure score range of 20-40 percent. The companies whose disclosure score
remarkably improved in the year 2007-08 over the year 2003-04 are KS Oils ltd (1.85%
to 42.59%), ICSA ltd ( 1.85% to 25.93%), Binani Cement (1.85% to 25.93%), Asian Star
Co. (1.85% to 20.37%) etc. This shift marks the companies consistent efforts to improve
their intangible assets disclosures.
Table 5.9 also exhibits that number of companies disclosing within the range of
40-60 percent have also increased from 12 to 36. While none of the companies is
disclosing in above 80 range in the year 2003-04, Infosys Technologies is the first
company to break into this range for the year 2007-08.
The intangible assets disclosure practices of companies on the basis of industry
classification like automotive, banking and financial services, software and IT, media and
telecommunication etc was also analysed. The descriptive statistics of different industries
i.e. mean disclosure score, standard deviation and range have been presented in table 5.10
for the years 2003-04 and 2007-08 respectively.
Table 5.10
Industry Wise Disclosure Score
Disclosure Score (in percent)
Name of industry

2003-04
Mean

SD

Min Max Mean

2007-08
SD

Min

Max

Agri input and tobacco

11 17.51

8.82 3.70 31.48 25.25 11.78

1.85 42.59

Automotive

15 21.85 14.36 0.00 53.70 27.65 10.13

9.26 44.44

Banking & financial services

16 15.63 11.43 0.00 40.74 27.04

9.57

9.26 38.89

Capital goods, industrial and engg products

29 16.48 10.41 0.00 40.74 24.71 10.79

3.70 48.15

Construction & electricity

26 13.39 12.43 0.00 44.44 26.35 14.44

3.70 57.41

Consumer goods, electronics, durables & FMCG

26 18.38 14.35 1.85 44.44 27.35 12.84

3.70 46.30

Drugs & pharmaceuticals

31 22.64 10.70 3.70 42.59 31.30 10.80 14.81 55.56

Media & telecommunication

8 18.98

8.73 3.70 29.63 30.32 10.19 12.96 44.44

Petrochemicals, chemicals & plastic products

12 22.07 14.57 0.00 51.85 30.86 13.71

Software, IT & ITES

28 28.04 11.74 1.85 61.11 34.59 13.35 14.81 79.63

Steel & other metals and minerals

17 13.51 12.74 0.00 46.30 24.07 15.42

Textiles & apparel

Transport, tourism, hotels & other diversified

8 15.51

7.47 3.70 24.07 28.24

3.70 53.70

6.16 16.67 37.04

16 15.28 10.40 3.70 40.74 22.69 12.31

109

9.26 53.70

1.85 44.44

Table 5.10 shows that the companies belonging to different industries have
variations in their mean disclosure score for both years of the study. It clearly shows that
the mean disclosure score of software industry is highest for both years of the study. The
score is 28.04% in 2003-04 and this increased to 34.59% in the year 2007-08.Variations
and range has also increased in the year 2007-08 over 2003-04.The mean disclosure score
of drugs and pharmaceutical industry has increased from 22.62% in the year 2003-04 to
31.30% in year 2007-08. This industry occupies second highest mean disclosure score for
both years of the study. A slight increase in variations and range is also noticed for this
industry in the year 2007-08 as compared to 2003-04.
The mean disclosure score of petrochemicals, chemicals & plastic products
industry has also increased from 22.07% to 30.86% in the year 2007-08. Variations for
this industry have reduced from 14.57% to 13.71%. The textiles and apparel industry has
also improved its mean disclosure score from15.51% to 28.64% in the year 2007-08.The
variations in the disclosure score for this industry are the least of all industries. It is
7.47% for the year 2003-04 and it further decreased to 6.16% for the year 2007-08.
Though the range of disclosure score has remained constant over the period of study.
The mean disclosure score of automotive industry increased from 21.85% in year
2003-04 to 27.65% in year 2007-08. Variations and range declined over the two periods
of study. In case of banking and financial services industry mean disclosure score has
also increased from 15.63% to 27.04% in the year 2007-08. Variations declined from
11.43% to 9.57%.
The mean disclosure score for remaining industries has improved in year 2007-08
over the year 2003-04. The score is 13.39% or above 13.39% for the two years of study.
Variations and range has also increased for all the industries.
Thus, the disclosure regarding intangible assets has improved for almost all the
industries for the year 2007-08 over the year 2003-04.This might be inspired by higher
investor expectation from all the companies belonging to different industries.

110

The finding that the mean disclosure score of software, IT and ITES industry is
highest as compared to other industries is not surprising. Firms in this knowledge based
industry need to be more proactive as they face greater competition and they often have
to rely on immutable intangibles that are difficult for competitors to imitate (Teece,
2000).
The high mean disclosure score for Drugs and pharmaceutical industry could be
motivated by the need to recognise the research activities and patents in this industry.
Further brands, customers and markets are key competitive factors which influence the
business of companies in media and telecommunication industry. This could be the
reason for high mean disclosure score for this industry.
5.6

DESCRIPTIVE STATISTICS
Table 5.11 explains the descriptive statistics for each of the five categories of

intangible assets disclosure index. The table shows that the disclosures (though low) have
improved for both the years of the study. The overall mean disclosure is 18.84% for the
year 2003-04. It increased to 28.09% in the year 2007-08. Overall variation remained
same for both the years but the range of disclosures has increased in the year 2007-08.
The range of intangible asset disclosure is zero to 68.52% in 2003-04 and 1.85%
to 81.48% in 2007-08. After removing the disclosure score of outperforming companies
(namely Infosys Technologies Ltd. and Satyam Computer Services Ltd.) the range comes
down to zero to 53.70% for the year 2003-04 and 1.85% to 57.41% for the year 2007-08.
The mean disclosure score of human capital is 5.63% in the year 2003-04 and it
increased to 7.48% in the year 2007-08. Variation and range of scores also improved in
the year 2007-08 over the year 2003-04. Similarly for categories external capital and
internal capital mean disclosure score, variation and range improved in the year 2007-08
as compared to the year 2003-04, except for the range of external capital category which
remained same for both the years of the study.

111

Table 5.11
Descriptive Statistics
Std.
Mean

Median Deviation Minimum Maximum

2007-08

28.09%

27.78%

12.45%

1.85%

81.48%

2003-04

18.84%

16.67%

12.45%

68.52%

2997-08

7.48%

7.41%

4.51%

22.22%

2003-04

5.63%

5.56%

4.21%

18.52%

2007-08

10.07%

9.26%

5.91%

24.07%

2003-04

7.14%

5.56%

5.84%

24.07%

2007-08

4.96%

3.70%

4.00%

20.37%

2003-04

3.19%

3.70%

2.97%

14.81%

2007-08

0.05%

0.00%

0.41%

3.70%

2003-04

0.05%

0.00%

0.41%

3.75%

2007-08

5.54%

7.41%

3.48%

11.11%

2003-04

2.83%

0.00%

3.66%

9.26%

Overall Index

Human capital

External Capital

Internal capital

Intangible assets
scoresheet

Mandatory disclosures
requirements

112

In case of intangible assets scoresheet category, mean, variation and range

remained same for both the years of the study. And for mandatory disclosures mean
disclosure is 2.83% in the year 2003-04 which improved to 5.54% in the year 2007-08.
Variations reduced from 3.66% to 3.48% in 2007-08. Range increased from 9.26% to
11.11%.
Although, the disclosure scores for the year 2007-08 continued to remain low.
The intangible assets reporting in the year 2007-08 has gained momentum as compared to
the year 2003-04.
5.7

INTER-PERIOD

COMPARISON

OF

INTANGIBLE

ASSETS

DISCLOSURE
In addition to the above, the intangible assets disclosure pattern for both the years
of the study has also been analysed with the help of paired sample t-test. It was applied to
find out any significant difference in the intangible assets reporting of the companies in
the year 2003-04 and 2007-08. Table 5.12 presents the results of this test.
Table 5.12
Results of paired sample t-test
Year

Number of
Companies

Mean

Std.
Deviation

Std. Error
Mean

2003-04

243

28.09

12.451

0.799

2007-08

243

18.84

12.452

0.799

Sig. (2tailed)

14.21

Table 5.12 depicts that the difference between mean disclosure score of intangible
assets for the year 2003-04 and 2007-08 is significant at one percent level. Thus, the
companies in India on an average disclose more on intangible assets in 2007-08 than in
2003-04 and such difference is significant. An upward trend in intangible assets
disclosure indicates increasing awareness about the significance of intangible assets
reporting among Indian companies.

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5.8

CONCLUSION
Based on the above discussions and analysis of the intangible assets disclosure

practices of selected Indian companies made on the basis of attribute-wise and companywise disclosures, the following conclusions can be drawn:
1.

The level of intangible assets disclosure is low in case of Indian firms, though it
has improved in the year 2007-08 as compared to the year 2003-04.

2.

Out of the five categories of the intangible assets disclosure index, external
capital is the most reported category for both the years of the study. It has
disclosure score of 38% and 36% in the years 2003-04 and 2007-08 respectively.
This could be due to the pivotal role of these disclosures in influencing
stakeholder decisions. In order to prove their edge over their competitors the
companies might want to emphasize on relations with their distributors, business
associates, customers, society and other organizations, and promote their brand,
which are all attributes of external capital.

3.

In all the five categories the attributes most reported are number of employees
(human capital), markets & market share (external capital), business
collaborations (external capital), research projects (internal capital),
intangible assets valuation (mandatory disclosure requirement) and details of
amortisation rates, method and carrying amount at beginning and end of period
(mandatory disclosure requirement).

4.

Reporting of intangible assets is very unorganised and unsystematic. This is due

to lack of an established, and generally accepted framework for reporting these
assets. It may also be the case that companies are genuinely committed to the idea
of managing and developing their intangible assets but do not have, or are not
aware of benefits, from its disclosure to stakeholders. Some companies view the
development of intangible assets as being an internal management issue and
therefore outside the scope of the annual report (Guthrie, 2000).

5.

The lack of established and generally accepted intangible assets reporting

framework has contributed to unorganised and unsystematic reporting of these
assets.
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6.

Analysis of qualitative and quantitative nature of disclosure shows that the

intangible assets reporting is mainly qualitative. Though in the year 2007-08 there
is s shift in trend towards quantitative disclosures over the year 2003-04.

7.

The mean disclosure score of intangible assets for 243 companies improved in
2007-08 over 2003-04 and those differences are significant at 1% level of
significance.

8.

Most of the intangible assets disclosures were found in the Management

Discussion and Analysis (MDA) section of annual report.

9.

Infosys Technologies Ltd has the highest intangible assets disclosure score for
both years of the study (2003-04: 68.52%, 2007-08: 81.48%). Satyam Computer
Services Ltd., Tata steel Ltd., Max India Ltd., Reliance Industries Ltd., Larsen
and Toubro Ltd., Dr.Reddy Ltd., Wipro Ltd., are few other companies with high
disclosure scores for both the years of the study.

10.

Software industry has highest mean disclosure score in India. This could be
motivated by the paramount importance of intangible assets to these businesses
and high overseas stakeholders expectations.

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