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Intellectual
Intellectual capital: definitions, capital
categorization and
reporting models
609
Kwee Keong Choong
Department of Accounting, School of Business, La Trobe University,
Melbourne, Australia

Abstract
Purpose – The purpose of this paper is to develop a conceptual framework that can be used to
formalise a reporting model for intellectual capital (IC).
Design/methodology/approach – This paper proposes a reporting model with a formal definition
and classifications of IC to analyse and report on the IC generated by a firm.
Findings – This paper demonstrates that the field is maturing to one in which it is possible to
analyse existing definitions and classifications of IC to construct a formal body of items that can be
considered as IC for use in the study and application of IC.
Practical implications – The paper presents a formal reporting model which can be used generally
in the analysis of the IC generated from the production process of a firm.
Originality/value – This study examines the characteristics of items that can be considered as IC in
order to provide a formal classification system of IC that can be instilled in a reporting system which
can be used generally in any organization that involves the use of IC.
Keywords Intellectual capital, Intangible assets
Paper type Conceptual paper

1. Introduction
The field of study into intellectual capital (IC), also known as intangible assets (IAs), or
other names (to be discussed in the next section) has been ongoing since the early 1990s
(Marr and Chatzkel, 2004, see Table I, p. 20)[1]. However, the wide array of studies
across disciplines has created a magnitude of definitions and emphasis, and a wide
range of resources, properties and attributes that can be considered as IC or
intangibles. The literature is also proliferated with different terms to describe either the
same or different information used in relating to IC (intangibles). Kaufmann and
Schneider (2004) provide a good account of the variety of terms and definitions for each
term in the literature. What we need is a system to streamline the various definitions
and terms into manageable categories (classes)[2]. Categorization enables us to put in
order the systematic organization of a magnitude of possibilities into a set of class
(group) consisting of a coherent number of items.
According to Rudner (1966), the value of classification is associated with its ability to
function as a heuristic device, which is useful for the interpretation of substance.
Researchers have developed various models to facilitate the measuring of each category
of intangibles (human, customer, and structural capitals) and enable the intangibles Journal of Intellectual Capital
Vol. 9 No. 4, 2008
reported to be compared with other firms. However, up until now, there has been no pp. 609-638
widespread acceptance of these models partly because these models are too qualitative, q Emerald Group Publishing Limited
1469-1930
broad or general, and the objectives remain ambiguous (Kaufmann and Schneider, 2004). DOI 10.1108/14691930810913186

Table I.
Use of terms and
definitions of IC (IAs)
Authors
Itami (1991)
Hall (1992, p. 136)
Smith (1994)
Brooking (1997, p. 13)
Edvinsson and Malone (1997, p. 22)
Sveiby (1997, p. 10) þ
Nahapiet and Ghoshal (1998, p. 245)
Stewart (1998, p. XI) þ
Granstrand (1999)
Brennan and Connell (2000, p. 1) þ
Harrison and Sullivan (2000, p. 34) þ
Sullivan (2000, p. 228) þ
Heisig et al. (2001, p. 60) þ
Lev (2001, p. 5) þ
Gu and Lev (2001, p. 14) þ
9,4
JIC
610
Term/concept Definition
Invisible assets “Intangible assets are invisible assets that include a wide range of activities
such as technology, consumer trust, brand image, corporate culture, and
management skills”
Intangible asset “Intangible assets are value drivers that transform productive resources into
value-added assets”
Intellectual property “Intangible assets are all the elements of a business enterprise that exist in
addition to working capital and tangible assets. They are the elements, after
working capital and tangible assets, that make the business work and are
often the primary contributors to the earning power of the enterprise. Their
existence is dependent on the presence, or expectation, of earnings”
Intellectual capital IC as “market assets, human-centered assets, intellectual property assets, and
infrastructure assets”
Intellectual capital and “Intangible assets are those that have no physical existence but are still of
intangible assets value to the company”
Immaterial values IC has three dimensions (employee competence, internal structure and
external structure)
Intellectual capital IAs as “knowledge and knowing capability of a social collectivity, such as an
organization, intellectual community or professional practice”
Intellectual capital IC is intellectual material – knowledge, information, intellectual property,
experience – that can be put to use to create wealth – collective brainpower
Intellectual property “IP is property directly related to the creativity, knowledge and the identity of
an individual”
Intellectual capital “Knowledge-based equity of a company”
Intellectual capital “Knowledge that can be converted into profit”
Intellectual capital “IC is knowledge that can be converted into profit”
Intellectual capital “IC is valuable, yet invisible”
Intangibles “An intangible asset is a claim to future benefit that does not have a physical
or financial (a stock or a bond) embodiment”
“Assets exclude financial assets” IA cannot stand alone
Intangibles Intangibles are defined by their value drivers (RD, advertising, IT, capital
expenditures, and human resources practices)a
(continued)
Authors
FASB NN (2001, p. 6) þ
Petty and Guthrie (2000, p. 158) þ
Pablos (2003, p. 63) þ
Rastogi (2003, p. 230) þ
Mouritsen et al. (2004, p. 48)
IASB (2004b, p. 2)
Note: aModifications of definitions
Source: þ Taken from Kaufmann and Schneider (2004, Table II)
Table I.
Term/concept Definition
Intangible assets “Intangible assets are non current, nonfinancial claims to future benefits that
lacks a physical or financial term”
Intellectual capital IC are indicative of the economic value of two categories (organization and
human capital) of IA of a companya
Intellectual capital “A broad definition of intellectual capital states that it is the difference
between the company’s market value and its book value. Knowledge based
resources that contribute to the sustained competitive advantage of the firm
from intellectual capital”
Intellectual capital “IC may properly be viewed as the holistic or meta-level capability of an
enterprise to co-ordinate, orchestrate, and deploy its knowledge resources
towards creating value in pursuit of its future vision”
Intellectual capital IC mobilises ‘things’ such as employees, customers, IT, managerial work and
knowledge. IC cannot stand by itself as it is merely provides a mechanism
that allows the various assets to be bonded together in the productive process
of the firm
Intangible assets An identifiable IA as a “non-monetary asset without physical substance held
for use in the production or supply of goods or services, for rental to others, or
for administrative purposes”
capital
Intellectual
611
JIC Moreover, there is no clear explanation on why many of the attributes (variables) are
9,4 included in the respective models. More fundamentally, what constitute IC is not clearly
defined, and what exists is an assortment of terminologies that provides more or less the
same meaning.
The purpose for this paper is therefore to examine what items are treated as ICs
(IAs) and how these expenditures contribute to value creation of firms. The author
612 adopts a staggered approach in developing a formal framework in identifying,
defining, categorizing, measuring and reporting IC. This approach is similar to the
approach taken by Kaufmann and Schneider (2004) in their review of the literature on
intangibles. The contributions of this research are the formalization of IC through more
appropriate definition and categorizing of IC, which can be used in providing a more
formal IC reporting framework. The author recognizes that not all issues can
be addressed here. For example, the identification of every attribute (item) that can be
considered as IC appears remote. This paper should therefore provide the motivation
for future research in the areas of identification of what constitutes IC, how IC is
measured and managed, and ultimately how IC is reported.
The remainder of this paper is organized as follows: Section 2 reviews the literature
on the appropriateness of the various definitions and terms relating to the various
attributes of IC. Section 3 discusses the state of the current categorization of IC. The
re-categorization of IC using normalization is in Section 4. Section 5 provides a
proposed reporting IC model. Section 6 concludes.

2. Definition of intellectual capital

The starting point in defining IC or IA should start from the definition of assets. IA (IC)
are considered the most critical resource of today’s enterprise and yet, most enterprises
cannot clearly define what constitutes an IA (Andreou et al., 2007, p. 52). A literature
review across disciplines indicates that there is a wide range of definitions that can be
considered as IC or IA. The literature is also proliferated with different terms to
describe either the same or different information used in relating to IC (IA). For
instance, nonaccounting researchers define “intellectual capital” as the “difference
between the firm’s market value and its book value of entity” (Edvinsson and Malone,
1997; Stewart, 1997; Sveiby, 1997; Mouritsen et al., 2001). To accounting researchers
(Ohlson, 1995, p. 662; Feltham and Ohlson, 1996, p. 220; Beaver, 1998, p. 78; Holthausen
and Watts, 2001, p. 50), the difference between the market value of the entity and the
book value of the entity’s identifiable assets is defined as “goodwill.” Goodwill is also
known as “intangible assets.”
This difference between the firm’s market value and its book value of entity is never
fully explained let alone identifying the constituents of the difference between market
value and its book value. Goodwill can be externally or internally generated. According
to generally accepted accounting practices of most countries, only external goodwill, or
purchased goodwill can be reported and its value amortised over its useful life (AICPA,
1970; ASB, 2004a, b; IASB, 2004a)[3].
The above discussion implies that the “goodwill” is “intangible assets” or
“intellectual capital”. However, we cannot accept IC or IA to be represented by goodwill
as the term is too broad and researchers have never fully explained its meaning.
Kaufmann and Schneider (2004) provide a good account of the variety of terms
and definitions for each kind of IA in their literature review from 1997 to 2003.
They indicate that there are some limitations of their coverage, as they did not focus on Intellectual
intangibles covered by the accounting literature, and that the coverage only capital
commenced from 1997. Nevertheless, their paper provide a good starting point for this
paper, and the author extends his literature review, including the major accounting and
nonaccounting journals before 1997 and after 2003[4]. The analysis of the terms used
for IC (IA), and their definitions are done as follows. As the author wants the
definitions to be specific, he has selected only those papers that provide unambiguous 613
definitions in Kaufmann and Schneider. In most cases, the authors makes use of the
definitions of IC (IA) in Kaufmann and Schneider, and only make modifications of
the definitions if the phrase is not clear. The terms used for IC (IA), and their definitions
in Kaufmann and Schneider plus those from the author’s findings, sorted in
chorological order is contained in Table I. Next, the author has selected those papers
that do not provide any definition and yet made unambiguous references to IC (IA) by
providing indications of their existence, and they are contained (sorted in chorological
order) in Table II.
Tables I and II show that the terms used by various researchers included but not
confined to “intangible assets,” “intangibles,” “intangible resources,” “intellectual capital,”
“intellectual property,” “intellectual knowledge” and “immaterial values” to mean more or
less the same thing. The term “immaterial values” is used by researchers/bodies in
countries that do not adopt UK/US-based accounting systems (e.g. Germany, Sweden and
France) to mean non-monetary value and without physical appearance, a term very
similar to “intellectual capital” or “intangible asset.” Therefore, the only difference
between the terms “immaterial values” and “intellectual capital” is one of usage or culture,
and this difference is trivia, and hence, these two terms can be treated as synonymous.
There are various definitions (indications) of ICs (IAs), and in general, most
definitions (indications) state that an IC (IA) is a non-monetary asset without physical
substance but it possesses value or it can generate future benefits. As there are a large
number of definitions (indications) of IC (IA) contained in Tables I and II, the author
will only elaborate on those that are less ambiguous.
Itami (1991) indicates that “intangible assets are invisible assets that include a wide
range of activities such as technology, consumer trust, brand image, corporate culture
and management skills.”
Hall (1992) considers that “intangible assets are value drivers that transform
productive resources into value added assets.” He splits IA into two categories:
(1) intellectual property (IP); and
(2) knowledge assets.

IA drives capability differentials, which in turn drive sustainable competitive

advantage.
Smith (1994) defines IAs as:
Intangible assets are all the elements of a business enterprise that exist in addition to working
capital and tangible assets. They are the elements, after working capital and tangible assets,
that make the business work and are often the primary contributors to the earning power of
the enterprise. Their existence is dependent on the presence, or expectation, of earnings.
Brooking (1997, p. 13) identifies IC as “market assets,” “human-centered assets,”
“intellectual property assets,” and “infrastructure assets” that when combined with an

Table II.
of their existence
but provides indications
No definition of IC (IAs),
Authors
Hall (1992, p. 136)
Boudreau and Ramstad (1997)
Edvinsson (1997, p. 372)
Bontis (1998)
Bontis et al. (1999, p. 397) þ
Arbeitskreis Immaterielle Werte im
Rechnungswesen der Schmalenbach-Gesellschaft
für Betriebswirtschaft e.V. (2001)
Kriegbaum (2001)
Daum (2002) þ
Funk (2003) þ
Note: aModifications of indications
Source: þ Taken from Kaufmann and Schneider (2004, Table II)
9,4
JIC
614
Term/concept Indication
Intangible resources IAs are value drivers that transform productive
resources into value added assets
Intellectual capital IC is closely related to human resource
management
Intellectual capital “IC is not an objective thing, but is a relationship
issue and a debt item”
Intellectual capital IC possesses intellectual attributes that can
contribute value of a firm
Intangible resources, Intellectual capital as a IC is quite simply the collection of intangible
subcategory resources and their flows. Intangible resources is
any factor that contributes to the value generating
processes of the companya
Immaterial values Non-monetary value without physical appearance
Immaterial values Physical not embodied financial goods. Their
nature is not monetary, and they are an economic
advantage for the companya
Intangible assets and intellectual capital Intangibles are characterized by a set of
attributes, and they can bring in economic
benefits rather quickly, and they often show
network effects
Considers IA to include human capital, RD,
advertising and knowledgea
Intangibles Intangibles relate to management creditability,
innovativeness, brand identity, ability to attract
talents, research leadership, social and
environmental responsibility
organization’s other productive resources will eventually lead to value creation. Intellectual
Edvinsson (1997, p. 372) opines that IC is not an objective thing, but is a relationship capital
issue and a debt item, which is borrowed from the customers and employees. By
combining IC with these items, an organization can become more productive. Bontis
(1998) considers that IC possesses intellectual attributes that can contribute value of a
firm. Edvinsson and Bontis also provide that IC can be categorized into three kinds of
IC – human, organizational and customer, similar to those of Brooking. 615
Boudreau and Ramstad (1997) consider that IC is closely related to human resource
management that is needed by the organization to provide the necessary impetus for
future development and growth.
Davenport and Prusak (1997) relates IC with technology, technological changes, and
things associated with the management of information technology (IT). The ability of
an organization that can utilize technology to manage and process information will be
the one that has the capability to employ IC into good use. Similarly, Stewart (1997, p. x)
relates IC with “the management of information technology that can be put to use to
create wealth.”
Nahapiet and Ghoshal (1998, p. 245) refer IAs as “knowledge and knowing
capability of a social collectivity, such as an organization, intellectual community or
professional practice.”
Sullivan (2000, p. 5) defines intangibles as “. . . knowledge that can be converted into
profit.” Firms obtain value from this profit generated from the sale of goods or services,
and that firms depend on intangibles such as reputation, customer loyalty, name
recognition, leadership, and standard setting, and these are vitally dependent upon
human capital to ensure repeat business (p. 12). Sullivan (2000) also adopted the three
categories of IC: human, organizational and customer (similar to those of Brooking,
1997; Edvinsson, 1997; Bontis, 1998) but indicates that by undertaking various
processes, these IC will lead to intellectual assets.
Lev (2001, p. 5) considers that “an intangible asset is a claim to future benefits . . .
and it does not have physical substance.” He also provides a new definition of assets to
exclude financial assets (for example, equities or bonds) from its scope. He states that
IAs consist of innovation, human capital, organisational capital, knowledge, etc. that
can be divided into three sub-categories: IP, separately identifiable IAs, and
non-separately identifiable IAs.
Daum (2002) indicates that intangibles are characterized by a set of attributes, and
they can bring in economic benefits rather quickly, and they often show network
effects. Hence, the definition of intangibles by Daum is influenced by Lev (2001) in at
least two respects. First, intangibles are the result of the network effect. Second,
intangible cannot stand by itself, and hence, any benefits derived from the use of
intangibles cannot be reliably measured.
Rastogi (2003, p. 230) states that IC is the result of the “collaborative effort among
the firm’s human and social capital, and knowledge management.” This definition is
similar to Lev (2001) and Daum (2002) in the sense that IC does not exit on its own but
is the result of the network effect.
Mouritsen et al. (2004) indicate that IC mobilises “things” such as employees,
customers, IT, managerial work and knowledge. They add, “IC cannot stand by itself
as it merely provides a mechanism that allows the various assets to be bonded together
in the productive process of the firm.”
JIC Andreou et al. (2007, p. 53) state that the business enterprise in this knowledge era
9,4 has a need to become “intelligent” about its environment to gain knowledge from its
environment and subsequently value its intangible resources. They argue that in order
for an enterprise to become “intelligent” it is necessary for it to scrutinize its business
processes/functions, codify them to facilitate the modeling of business activities, and
provide definitions, attributes and constraints of business intelligence that align with
616 the performance of the enterprise.
The definition of IC by Lev (2001), Daum (2002), Rastogi (2003) and Mouritsen et al.
(2004) appears to have two things in common:
(1) intangible cannot stand by itself, and hence, it cannot be valued separately from
other assets; and
(2) IC is the result of the network effect of utilizing various intellectual, human,
capital and organizational resources.

On the accounting policy (standard setter) perspective, IASB (2004b)[5] IAS 38 (revised)
defines an identifiable IA as a “non-monetary asset without physical substance held for
use in the production or supply of goods or services, for rental to others, or for
administrative purposes.” IAS 38 defines an IA that includes expenditure on
advertising, training, start-up, and research and development activities. The range
of activities that can be treated as IAs is wide but all are expected to generate future
benefits (cash flows), and these could result from activities such as advertising
(marketing), distributing, research and development, human resource expenditures, and
values that come from brand names, copyrights, covenants not to compete, franchises,
future interests, licences, operating rights, patents, record masters, secret processes,
trademarks, and trade names. These items that can be considered as IC by the IAS 38 are
similar to those advocated by the non-accounting group.
The German Schmalenbach Society Working Group on “Intangible assets in
accounting” (Arbeiskreis Immaterielle Werte im Rechnungswesen der Schmalenbach-
Gesellschaft fur Betriebswirtschaft e.V., 2002) defines IC as immaterial items with
non-monetary values without physical appearance.
It follows that IC (IA) have been defined to include expenditures on advertising
(marketing), training, start-up, research and development activities, human resource
expenditures, organizational structure and values that come from brand names,
copyrights, covenants not to compete, franchises, future interests, licences, operating
rights, patents, record masters, secret processes, trademarks and trade names.
However, from the recognition and treatment criteria of IAs from the accounting
perspective, most of the above mentioned items should be expensed as they were
incurred and that, only those that can be quantitatively identifiable or externally
generated should be capitalised in the balance sheet.

3. The state of the current categorization of intellectual capital

Kaufmann and Schneider (2004) reviewed the major literature on intangibles from 1997
to 2003 and found that most publications still lack a theoretical foundation. Even for the
few that do, it is quite abstract (Grant, 1997) or they talked about theories on too broad
context that do not address how it relates to practical matters (Johansson et al., 2001;
Mouritsen et al., 2002; Wood, 2003). Diefenbach (2006) indicates that up till today, there
has no serious attempt to define and identify all intangible resources systematically.
This probably explains why it is difficult to define what IC (IA) is. Perhaps, it would be Intellectual
more appropriate to classify them instead as classification is less stringent than capital
definition. Nevertheless, classification also implies defining it (Grojer, 2001, p. 698).
Categorization enable one to order the systematic organization of a magnitude of
possibilities into a set of class (group) consisting of a coherent number of items.
Numerous groups, accounting professions and researchers have attempted to categorize
intangibles. Table III provides an overview of various attempts used in categorizing IC (IA). 617
As it is beyond the scope of this paper to deal with anyone’s work, only the
prominent classifications of IC are discussed. Sveiby (1997) is the first from the
non-accounting perspective to propose the classification of IC, and he concludes that
intangibles can be categorized into three sub-categories:
(1) employee (individual) competence;
(2) internal structure; and
(3) external structure.

Brooking (1997) added a fourth category – “intellectual properties assets” to the IC

category of Sveiby. Edvinsson (1997) adopted the three categorizations of Sveiby, but
termed them as:
(1) human capital;
(2) organizational capital; and
(3) customer capital, respectively, for the Skandia NavigatorTM.
Further, he indicates that IC is part of an organisational asset, and non-disclosure of such
assets constitutes items that are hidden from the conventional financial statements.
Edvinsson and Malone (1997), Bontis (1998), and Sullivan (1998) have also adopted
the similar three group categorizations of Sveiby, but they termed them as:
(1) human capital;
(2) organisational capital; and
(3) customer capital, respectively.

Even though Stewart (1998) accepted the classification of Sveiby, he renamed them as:
.
human capital;
.
structural capital; and
. customer capital, respectively.
Sullivan (2000) also adopted the three categories of IC proposed by Sveiby, but
indicates that by undertaking various processes, these IC will lead to intellectual
assets. Petty and Guthrie (2000) use only two out of the three categories of IC of Sveiby
(human capital and organizational (structural) capital). Mouritsen et al. (2002), and
Pablos (2003) also used the same three-category classifications of IC as per Sveiby,
however, Pablos termed “customer capital” as “relational capital.”
Lev (2001) states that IAs consist of:
(1) innovation (discovery or knowledge);
(2) human resources; and
(3) organizational practices (capital).

bodies
Table III.
(IAs) by authors
Categorizations of IC
(researchers), groups or
Authors
Redovisnings Rådet (1995)
LBK (1996)
Brooking (1997)
Edvinsson (1997)
Edvinsson and Malone (1997)
Roos and Roos (1997)
Roos et al. (1997)
Skandia Insurance Services (1997)
Sveiby (1997)
Stewart (1998)
Redovisnings Rådet (1998)
Bontis et al. (1999)
Cañibano et al. (2000)
Granstrand (1999)
Andriessen and Tiessen (2000)
Brennan and Connell (2000)
Harrison and Sullivan (2000)
Michalisin et al. (2000)
Sánchez et al. (2000)
Chan et al. (2001)
9,4
JIC
618
Term/concept Categorization
Immaterial values Capitalized cost of research and development and similar
projects, concessions, patents, licences, trademarks, and similar
rights, tenancy agreements and similar rights, goodwill,
payments on accounts
Immaterial values Development costs, concessions, patents, licences, trademarks,
similar rights and goodwill
Intellectual capital Market assets, human-centered assets, intellectual property
assets and infrastructure assets
Intellectual capital Human capital, organizational capital and customer capital
Intellectual capital and Human capital and structural capital
intangible assets
Intellectual resources Human capital and structural capital
Intellectual resources Human capital and structural capital
Intellectual capital Human capital and structural capital
Immaterial values Internal structure, external structure and personnel competence
Intellectual capital Human capital, structural capital and customer capital
Immaterial values RD, concessions, patents, licences, trademarks, and similar
rights and assets, prepaid taxes and goodwill
Intangible resources, Human capital and structural capital
intellectual capital as
a subcategory
Intangibles Human capital, structural capital and relational capital
Intellectual property Creativity, knowledge, identity of individuals
Intangibles Assets and endowments, skills and tacit knowledge, primary
and management processes, technology and explicit
knowledge, and collective values and norms
Intellectual capital Internal structure, external structure and human capital
Intellectual capital Human capital, intellectual assets that include IP
Intangible resources Reputation, know-how, organization structurea
Intangibles Human capital, structural capital and relational capital
No term RD, advertising
(continued)
Authors Term/concept Categorization

Arbeitskreis Immaterielle Werte im Immaterial values Human capital, innovation capital, customer capital, supplier
Rechnungswesen der capital, investor capital, process capital and location capital
Schmalenbach-Gesellschaft für
Betriebswirtschaft e.V. (2001)
FASB NN (2001) Intangible assets Technology, customer, market, workforce, contract,
organization and statutory-based assets
Gunther (2001) Immaterial values Internal structure, external structure and employee competence
Gu and Lev (2001) Intangible assets Advertising, IT, capital expenditures and human resources
practices
Lev (2001) Intangibles Discovery, organizational practices and human resources
Marr and Schiuma (2001) Knowledge assets Stakeholder resources and structural resources
MERITUM (2002) Intangibles and Human resources, structural resources and relational resources
Intellectual capital
Bontis (2002) Intangible capital Human capital, structured capital and relational capital
Mouritsen et al. (2002) Intellectual capital Human capital, organizational capital and customer capital
Petty and Guthrie (2000) Intellectual capital Human capital and organizational (structural) capital
Marr et al. (2003) Knowledge assets Strategy, influencing behavior and external validation
Pablos (2003) Intellectual capital Human capital, organizational capital and relational capital
IASB (2004b) (first issued in 1998)a Intangible asset Advertising (marketing), distributing, training (human
resource), start-up, RD, brands, copyrights, covenants not to
complete, franchise, future interests, licences, operating rights,
patents, record masters, secret processes and trademarks (trade
names)
Note: aModifications of indications
capital
Intellectual

Table III.
619
JIC These three categories can be divided into three sub-categories: IP, separately
9,4 identifiable IAs, and non-separately identifiable IAs.
Gu and Lev (2001, p. 14) simplify the study of IAs by grouping them into five
sub-groups:
(1) research and development;
(2) advertising;
620
(3) capital expenditures;
(4) information systems; and
(5) technology acquisition.

They focus on measurement issues and how intangibles can influence the capital
market and investors. Kaufmann and Schneider (2004) argue that the work of Gu and
Lev may be interesting and address many issues (e.g. measurement, economic
value-chain, value creation, etc.), but their approach consists of too many assumptions,
most of which are rather arbitrary.
Bukh et al. (2001) compared various taxonomies of IC and came out with three
things in common:
(1) activities connected to employees;
(2) tasks, processes and structures; and
(3) services and value-added activities connected to customers, very much similar
to the three categories of IC of Sveiby (1997).

The Measuring Intangibles to Understand and Improve Innovation Management –

MERITUM (2002) for the measurement of intangibles within the firm, the outcome of
the MERITUM Project[6], have in many ways adopted the IC methodology of Sveiby
(1997) including the classification of IC into three categories:
(1) human resources;
(2) structural resources; and
(3) relational resources.

Moreover, the guidelines indicates that IC reports can be structured in various ways
and use many different vehicles of communication, such as texts, figures,
indicators and many other devices, in order to represent intangibles assets and
performance.
Analysis of the classifications of IC indicates that by and large, various researchers
have adopted the three categorization-human, structure and customers of Sveiby
(1997), suggesting that the categorization of IC is consistent. However, Kaufmann and
Schneider (2004) consider that the categorization of IC by these authors is unclear and
are generally too broad. For example, some researchers treated patents as customer
capital while some treated it as knowledge capital.
On the accounting standard setting perspective, two groups of purely normative
researchers on IA came out with similar outcomes. They are the FASB and the German
Schmalenbach Society Working Group on “Intangible Assets in Accounting” (Arbeiskreis
“Immaterielle Werte im Rechnungswesen” der Schmalenbach-Gesellschaft fur
Betriebswirtschaft eV).
 The FASB NN (2001) categories IA into seven categories for financial reporting: Intellectual
(1) technology; capital
(2) customer;
(3) market;
(4) workforce;
(5) contract; 621
(6) organization; and
(7) statutory-based assets.

The German Schmalenbach Working Group (Arbeitskreis Immaterielle Werte im

Rechnungswesen der Schmalenbach-Gesellschaft für Betriebswirtschaft e.V., 2001,
2002) also grouped IA into seven categories:
(1) innovation capital;
(2) human capital;
(3) customer capital;
(4) supplier capital;
(5) investor capital;
(6) process capital; and
(7) location capital.

Both work on IA are useful, in particular the FASB approach as it provides a clearer
description of items, less overlap of groups, and even provided examples on IA and
events leading to the creation of IA, and as a result, provide more concrete and
complete perspective on IA that can be applied in the business context (Kaufmann
and Schneider, 2004, Figure 1).
Marr et al. (2003) reviewed the literature on the measurement of IAs, and identified
that IC can be categorized into three main categories:
(1) strategy;
(2) influencing behaviour; and
(3) external validation.

Marr and Chatzkel (2004) find that the researchers on intangibles often classify them into:
.
human capital (employees’ skills, talent and knowledge);
.
information capital (information systems, databases and computer systems); and
.
organization capital (culture, leadership, employee alignment, teamwork).

They conclude that in general, IAs are a collection of knowledge, intellectual and
revenue generating resources.
Maines et al. (2003) categorize research on intangibles into three areas, research related to:
(1) current financial reporting for IAs;
(2) disclosures about IAs; and
(3) recognition of IAs; the same three categories of IC by Sveiby (1997).
JIC
9,4

622

Figure 1.
Classifying IC using
entity-relationship

Analysis of the attempts in rationalizing IC through categorization indicates that

researchers have used several terms to refer to IC, and there is a tendency towards the
harmonization of the classification of IC-most researchers have adopted the three
categorization-human, structure and customers (relation) of Sveiby (1997). This finding
is consistent to Marr and Adams (2004). They find that there has been a general
convergence towards a three-grouped framework consisting of:
(1) human capital;
(2) organizational (or structural) capital; and
(3) relational capital; based on Sveiby (1997), MERITUM (2002), and Bontis (2002).

Why are these three classes (human, structure, customer (relation)) of IC so accepted by
the various researchers? Human capital relates to the skill-sets, aptitudes and attitudes
of employees and they are widely reported (Garcia-Meca, 2006). Even though many
authors consider that human capital is part of IC, technically and legally, human
capital cannot be owned by a firm unlike other forms of IC such as structural capital
(Edvinsson and Malone, 1997; Stewart, 1998). Organizational or structural capital is the
most complex – and has undergone several changes, but recently, some researchers
(Marr et al., 2003) have suggested it to include culture, innovation and process.
Relational capital relates to the organizational relationships with all its stakeholders.
The above discussion indicates that the rationalization of IC using the
categorization approach better describe what IC is as compared to using the
definition approach. There are two reasons for this. First, as IC is “invisible”
(i.e. without physical substance), it is much harder to define than many other items.
Second, the study of IC is relatively new and evolving, and it is hard to isolate the range
of activities associated with IC that can be defined. However, even if we adopt the
classification approach, issues still remain. There is still no cohesive methodology and
objective used in classifying IC. Moreover, inconsistency and overlap of classes and Intellectual
sub-classes occurs frequently and there is no agreed classification schema across capital
studies of IC. What we need is a system to streamline the various categories and terms
into manageable categories (classes). This will be discussed in the next section.

4. Re-categorization of intellectual capital using normalization concept

623
This section attempts to improve the classification of IC through re-classification. On
many occasions, when we attempt to categorize (classify) items, for exhaustive reason,
we will try to classify as many intangible items as possible, but then, the more items
we have, definition of items in terms of exclusiveness tend to be tautological, and as
such, the conflict between exhaustiveness and exclusiveness become unclear.
Therefore, for practical reasons, Grojer (2001) suggests that we have to seek an
exhaustive-exclusive trade-off, and the outcome is a classification schema with less
information content.
As IC is non-physical and by nature, they exist conceptually, an appropriate
methodology that can be used to classify IC is entity-relationship (ER) model because
of its wide acceptance. The ER model is a high-level conceptual data model developed
by Peter Chen in 1976 to facilitate database design. The main purpose for developing a
high-level data model is to support a user’s perception of data, and to conceal the more
technical aspects associated with database design. Even though ER is developed for
use in the computer environment, it can also be applied to the IC (IA). After all, many of
IC is in the form of computer technology (e.g. hardware and software), information
system processing, and IP.
The basic concepts of the ER model include entity types, relationship types and
attributes. An “entity type” refers to “an object or concept that is identified by the
enterprise as having an independent existence” (Connolly et al., 2005). An entity type
has an independent existence and can be an object with a physical (or “real”) existence
or an object with a conceptual (or “abstract”) existence. For example, a component of IC
– human resource structure of an organization, the entity may be represented by
human development. The particular properties of entities are called “attributes”
(Connolly et al., 2005). The attributes of an entity hold values that describe each entity
and the values held by attributes represent the main part of the data stored in the
database. The human development entity may contain the attributes: staff number,
and development. In order for the human development to be linked to the respective
staff, a relationship between these two attributes must be established. The concept of
“relation” is based on the concept of mathematical relations. In a relational structure
(schema), a relation can be viewed as a table with columns and rows that links an
entity (object) with another entity.
The formal categorization (classification) process for this paper involves a series of
steps and they are summarized as follows:
.
identification of the various entities (objects), their attributes and relationships;
.
grouping (classifying) common entities into a formalized order to become a
taxonomy (Bloom and Krathwohl, 1956); and
.
formalize the IC taxonomy with ER.
JIC This form of classification is consistent to the one used by Choong (2007).
9,4 The starting point of the refinement of the classification of IC stems from Table III.
In this table, the various authors, their terms (concepts) used in referring to IC (IA), and
how they categorize the various components of IC are analysed. The classification
schema for all researchers (authors) from this table only provides sub-class with no
relationship between classes. Thus, most of these classifications offer little description
624 of their reasons (logic) of classification and identification of classes and sub-class, and
fail to classify the universe of discourse exclusively or exhaustively. Rudner (1966,
p. 32) refers to this form of classification as classificational analytical schemata, Grojer
(2001, p. 699) considers that this form of classification is common in the field of
accounting.
An important consideration in classification schemata is the use of attributes in
relating to each class of IA. However, few authors discuss the attributes of their
classification (Grojer, 2001). The few that do only provide vague description of the
choice of their chosen attributes. For example, IAS 38 considers two attributes:
recognition and origin are useful in classifying intangibles. The first concerns whether
the intangible can be recognised or not. The second indicates where the intangible
originates. Describing an entity in terms of the attributes as described above only
offers limited usefulness. Grojer considers such description of attributes to be dated
considering that business activities can be outsourced or co-produced.
What we need is a system, along the line of a normative, deductive approach to
divide (construct) an attribute for intangibles that can be divided into different classes.
This is a normative, deductive approach. However, choosing a particular approach to
classification can be an arduous task considering there are different approaches to
attribute identification. Since IC classification must lead to somewhere; the most
obvious is that it must be linked to the accounting system since they must be
eventually reported. Roberts (1995) hypothesizes that there are five approaches that
can be used in classifying financial accounting systems in different countries:
(1) essentialist approaches;
(2) overall similarity approaches;
(3) diachronic approaches;
(4) set theory approaches; and
(5) archetypal approaches.

Out of these five approaches, the author considers the set theory approach to be the
most appropriate one that can be used in the IC setting. Using this approach, we can
avoid the problem of attribute choice by classifying through deduction to express its
property (attributes) in terms of “goodness” or properties that best describe (relate) to
the class (Roberts, 1995; Grojer, 2001). Hence, only the attribute(s) that is the basis for
classification counts. For instance, technology is considered as one class of intangibles.
To sub-classify it into components, we need well-defined (expression) to define the
various attributes to sub-classify its components base on the attributes of technology,
information usefulness, and computer/IT (hardware). All other possible attributes of
technology are of no use for classification purpose. The result is the class of technology
and its sub-classes consisting of the sub-classes “technology,” “information” and
“computer” (Figure 1).
 The cardinality for the components of IC is straightforward as it consists of Intellectual
categories and their components, i.e. one object (class) (left hand side – LHS) relating to capital
several components (sub-classes) (right hand side, RHS), i.e. 1: M relationship.
To normalize IC into categories, let’s start from the right entity (sub-categories).
The function of the classification or cataloging system is to establish a standardized
form for the components of every class (not the names of every author) for which we have
information, and hence being able to group, if not physically then virtually, works by one 625
group in one place. The existence of pseudonyms and variant spellings is a problem that
must be addressed and typically, the classifier must choose to avoid ambiguity of
classification, and provides a clear boundary of each sub-class. This approach in
classification is similar to that taken by the Center for Education and Research in
Information Assurance and Security (CERIAS)[7], where the librarian chooses one on the
forms and groups variations under this one spelling in cataloging works for each
authors. Therefore, classification of information is as much an art as it is science.
The normalization process produces ten categories of IC, each having one or more
sub-categories. For example, technology consists of information, IT, and technology
(Figure 1). The column for researchers is added to the table for informativeness reason.
What is missing is the relation between classes. For example, there is little indication of
the relation between the technology and the customers class. As the literature does not
provide much guidance as to how each class is related to another, it is beyond the scope
of this paper to develop a relation between the different classes of IC. While the author
endeavours to categorize IC into various sub-classes using the goodness attributes, he
recognises that issues such as exhaustiveness and exclusiveness, consistency and
recognition may not be consistently applied across the classes. Also, other approaches in
classifying IC may be used, and the outcome may be different. All these issues of IC
categorization identified are useful in shaping a good framework for IC, and this can be
an avenue for future research in the direction of classification and relating classes for IC.

5. Reporting models
The proposed reporting model for IC is based on existing models and hence it is
necessary to discuss these models before formulating the model.

5.1 Discussion of approaches and issues of current models for reporting intellectual
capital
Kaufmann and Schneider (2004) state that researchers have developed various models
to measure and manage intangibles, and they were constructed for different purposes;
some for external reporting and some to manage intangible resources within a firm.
Kaufmann and Schneider conclude that model constructors were based on four schools
of thought. The first school believes that management has a primary responsibility to
transform human capital into structural capital (e.g. the 1997 annual report and
information on IC is available from Skandia’s web site (www.skandia.com)[8],
Edvinsson, 1997; Rydén and Bredahl, 2003). They advocate supplying supplementary
information to the annual financial report, and focusing on agents within the firm. The
second school is based on the model developed by Sveiby (1997), which is now known
as the Intangible Asset Monitor, which includes information about growth, renewal,
efficiency, stability, and risk relating to each category of intangibles (employee
competence, internal structure and external structure). According to Kaufmann and
JIC Schneider (2004), this model has been used by many companies, e.g. Celmi (Sweden).
9,4 The third school is the model advocated by Stewart (1997) which focuses in measuring
each category of intangibles (human, customer, and structural capitals) and enable the
intangibles reported to be compared with other firms. The fourth school of thought
relates to the balanced scorecard (BSC) model developed by Kaplan and Norton (1996,
2000, 2004). While the four perspectives (financials, customers, internal processes, and
626 learning and growth) are not directly related to intangibles, they provide strategic
company performance measurement in a holistic way that goes beyond the financial
perspective.
In addition to the four schools of thought in modeling IC, the author considers three
other schools of thought that warrant attention. The fifth school considers there are
four main classes of IC: market assets, human-centered assets, IP assets, and
infrastructure assets (Brooking, 1997). She perceives that each of these assets can be
viewed as a component of IC, and their intersection is what creates value. The sixth
school is based on the accounting methodology proposed by KPMG, and developed by
Andriessen and Tiessen (2000) for calculating and allocating value to five types of
intangibles: assets and endowments, skills and tacit knowledge, collective values and
norms, technology and explicit knowledge, and primary and management processes.
This model is now trademarked as the Value Explorere. The seventh school is the
value chain approach in identifying, measuring, and determine value created by
intangible expenditures. Lev’s (2001, 2002b) value chain scoreboard identifies the
“fundamental economic process of innovation.” His value chain represents the factors
critical for innovation and includes three phases of innovation, namely, discovery and
learning, implementation, and commercialization. The Scoreboard includes nine
“information boxes” of relevant information items. Lev’s nine boxes do not represent a
generic model but rather provide a comprehensive set of information categories from
which a firm can select depending on its strategic priorities.
The seven schools of thought in modeling IC are presented in Table IV.
Most models provide only supplementary information to the annual financial report
and most of the measures are in nonfinancial terms, of which many are in assigned
indicators (e.g. Skandia and Intangible Asset Monitor). Up until now, there is no
widespread acceptance of these models with the exception of the BSC. This is partly
because these models are too qualitative, broad and general, and the objectives remain
ambiguous (Kaufmann and Schneider, 2004). Even the BSC model is broad and has
many qualitative attributes, which can be cumbersome to implement in the IC
perspective.

5.2 Formulating a model to report on intellectual capital

The proposed IC reporting system is based on prior literature. It comprises of a:
.
collection of items that can be classified as IC (to be discussed later); and
.
value chain system that is needed to measure the various components of IC, and
their intersection is what creates value.

The classification of IC is based on Brooking’s (1997) four main classes of IC: market,
human-centered, IP, and infrastructure assets. Brooking’s four classes of IC is chosen
because the three classes (human, structure and customers) are considered the
fundamental drivers for IC by most researchers (discussed earlier). The fourth, IP
 Intellectual
Method Authors Description of measure
capital
Skandia Navigatore Edvinsson (1997) and Edvinsson Provide supplementary
and Malone (1997) information to annual financial
report; focus on nonfinancial
measures covering five
components: (1) financial; 627
(2) customer; (3) process; (4) renewal
and development; and (5) human
Intangible asset monitor Sveiby (1997) Provide strategic information of
the firm concerning: (1) growth;
(2) renewal; (3) efficiency;
(4) stability; and (5) risk
Calculated intangible value Stewart (1997) and Luthy (1998) Calculates the excess return on
tangible assets (ROA) in terms of:
(1) human; (2) customer; and
(3) structural IA
Balance scorecard Kaplan and Norton (1996, 2000) Sets of financial and nonfinancial
measures to indicate four
perspectives: (1) financials;
(2) customers; (3) internal process;
and (4) leaning and growth
Technology broker Brooking (1996) Report using qualitative measures
on four components: (1) market
assets; (2) human asserts;
(3) intellectual property assets;
(4) infrastructure assets
Value Explorere Andriessen and Tiessen (2000) Provide supplementary report
using calculated and allocating
value to 5 types of intangibles:
(1) assets and endowments;
(2) skills and tacit knowledge;
(3) collective values and norms;
(4) technology and explicit
knowledge; and (5) primary and
management processes
Value Chain Scoreboarde Lev (2001, 2002b) A matrix of nonfinancial indicators
arranged in three categories
according to the cycle of Table IV.
development: discovery/learning, The seven schools of
implementation, and thought in modeling
commercialization intellectual capital

capital is an integral part of the value chain process as it is needed for the
implementation and commercialization of products and services as well as a form of
economic rent as a reward to implementers of IC. Lev (2001, 2002a, b), Marr and
Schiuma (2001), and IAS 38 also considers IP to be a vital IC component that can
generate sustainable value for the firm.
The data for the classification of IC are based on Table III and using the ER concept,
the various classes of IC and their attributes can be reclassified into the four main
classes of IC. Knowledge (skill) and competence are attributes referring to properties of
human capital, and hence, the knowledge and competence are sub-classes of human
JIC capital. This classification is consistent to Skandia Insurance Services (1997) annual
9,4 report, Kaplan and Norton (1996, 2000), Roos et al. (1997), and Bontis (2002). Similarly,
development (process) and technology are the sub-classes of structure capital. This
classification is consistent to Skandia (1994), Kaplan and Norton (1996, 2000), Roos et al.
(1997), and Edvinsson (1997). It is obvious that brands and rights are the components
of IC. supplier and investor are not used for the proposed IC reporting model because
628 the former is considered part of current accounts (short-term) and the later is part of
Shareholders’ equity, both of which are components of tangible assets. The completed
IC classification comprises of ten classes and they are presented in Table V.
To provide a reporting system will require a value chain system. This value chain is
necessary for three reasons. First, users of financial statements have an incomplete
picture of IC due to identification, recognition and measurement problems
(Garcia-Meca, 2006). From this, it can be shown that the traditional financial
statement is not suitable for the reporting of IC. Second, since IC cannot stand by itself
as it merely provides a mechanism that allows the various assets (customers, IT,
development costs, etc.) to be bonded together in the productive process of the firm,
value creation is viewed as a value chain process (Lev, 2001, 2002b; Mouritsen et al.,
2001). Third, the value chain enables the firm to systematically monitor the
performance and investment opportunities of the firm’s entire value creation system.
Therefore, corporate reporting and internal management systems must provide a
more holistic view that enables investors and managers to evaluate the performance of
the total value process of the firm. The reporting statement must contain a set of rules
that allows users to appreciate the content of the IC statement in such a way that they
can make an independent judgment of its content (Nielsen et al., 2006). For the
intangible inclusive management and financial systems to be effective, the systems
must accommodate changes that take place on a continuous basis (e.g. technology,
R&D, human capital, customers, etc.). The systems also require an IP management
system that helps to monitor and oversee all available patents, determine new patents
use, and to keep track of the corresponding “value extraction” projects and programs.
In short, the new intangible inclusive system consists of two parts:
(1) internal management system that mobilizes the relationships between invested
and available resources (e.g. human resource, technology, organizational
procedures, etc.); and
(2) to generate sustainable value for stakeholders.

The complete reporting system is shown in Figure 2. Thus, the formalization of IC

consists of a classification system and a value chain reporting system that is needed to
be used in the initiation, development, implementation, and commercialization of a
firm’s products and services.

6. Conclusions and future research

IC is important because it has become a key resource of value creation in today’s
knowledge economy. However, this study still finds many fundamental issues that
have yet to be resolved. There are various definitions (indications) of ICs (IAs)
contained in many studies, and there is still a lack of a standard definition of IC or IA.
In general, most definitions (indications) state that an IC (IA) is a non-monetary asset
without physical substance but it possesses value or it can generate future benefits.
Category Components Researchers

Technology Technology Itami (1991), Andriessen and Tiessen (2000), Gu and Lev (2001), Mouritsen et al. (2004)
and FASB NN (2001)
Information Davenport and Prusak (1997) and Stewart (1997, 1998)
IT Davenport and Prusak (1997), Stewart (1997), and Mouritsen et al. (2004)
Knowledge/skill Intellectual/professional practice Nahapiet and Ghoshal (1998) and Stewart (1998)
Intellectual property assets Brooking (1997)
Knowledge/skill Granstrand (1999), Andriessen and Tiessen (2000), Brennan and Connell (2000) and
Sullivan (2000)
Creativity Mouritsen et al. (2004) and Granstrand (1999)
Innovation capital Arbeitskreis Immaterielle Werte im Rechnungswesen der Schmalenbach-Gesellschaft
für Betriebswirtschaft e.V. (2001)
Discovery Lev (2001)
Secret processes IASB (2004b)
Customers/relation/external Consumer trust Itami (1991)
Customer capital Edvinsson (1997), Stewart (1998) and Arbeitskreis Immaterielle Werte im
Rechnungswesen der Schmalenbach-Gesellschaft für Betriebswirtschaft e.V. (2001)
Mouritsen et al. (2002)
External structure Sveiby (1997) and Brennan and Connell (2000)
Gunther (2001)
Customers Mouritsen et al. (2004), FASB NN (2001)
Market assets Brooking (1997)
Market FASB NN (2001)
Advertising Gu and Lev (2001) and Chan et al. (2001), IASB (2004b)
Distributing IASB (2004b)
Contract FASB NN (2001)
Payments on accounts Redovisnings Rådet (1995)
Structure/internal Corporate culture Itami (1991)
Infra-structured assets Brooking (1997)
Organizational capital Edvinsson (1997), Mouritsen et al. (2002) and Petty and Guthrie (2000)
Internal structure Sveiby (1997), Brennan and Connell (2000) and Gunther (2001)
Organization (structure) Nahapiet and Ghoshal (1998), Michalisin et al. (2000), FASB NN (2001), and Petty and
Guthrie (2000)
(continued)

components
capital
Intellectual

Table V.

(IAs) and their

Categorizations of IC
629
 9,4
JIC

630

Table V.
Category Components Researchers

Structural capital Edvinsson and Malone (1997), Roos and Roos (1997), Roos et al. (1997), Stewart (1998),
Bontis et al. (1999), Cañibano et al. (2000) and Sánchez et al. (2000)
Structural resources Marr and Schiuma (2001) and MERITUM (2002)
Start-up capital IASB (2004b)
Relational structure Cañibano et al. (2000), Sánchez et al. (2000) and Petty and Guthrie (2000)
Relational resources MERITUM (2002)
Statutory-based assets FASB NN (2001)
Location capital Arbeitskreis Immaterielle Werte im Rechnungswesen der Schmalenbach-Gesellschaft
für Betriebswirtschaft e.V. (2001)
Organizational practices Lev (2001)
Culture (collective values and norms) Andriessen and Tiessen (2000)
Strategy Marr et al. (2003)
External validation Marr et al. (2003)
Human Management skills Itami (1991)
Human-centered Assets Brooking (1997)
Human capital Edvinsson (1997), Edvinsson and Malone (1997), Roos and Roos (1997), Roos et al.
(1997), Stewart (1998), Bontis et al. (1999), Cañibano et al. (2000), Brennan and Connell
(2000), Harrison and Sullivan (2000), Sánchez et al. (2000), Arbeitskreis Immaterielle
Werte im Rechnungswesen der Schmalenbach-Gesellschaft für Betriebswirtschaft e.V.
(2001) and Mouritsen et al. (2002)
Employee competence Petty and Guthrie (2000), Petty and Guthrie (2000) and Sveiby (1997), Gunther (2001)
Experience Stewart (1998)
Identity of individual Granstrand (1999)
Human resources Lev (2001) MERITUM (2002)
Human resource practices Gu and Lev (2001)
Employees Mouritsen et al. (2004)
Managerial work
Workforce FASB NN (2001)
Training IASB (2004b)
Influencing behavior Marr et al. (2003)
(continued)
Category Components Researchers

Development/process Research and development (RD) Gu and Lev (2001), Redovisnings Rådet (1995), LBK (1996), Redovisnings Rådet (1998)
and IASB (2004b)
Capital expenditures Chan et al. (2001) and Gu and Lev (2001)
Process capital Arbeitskreis Immaterielle Werte im Rechnungswesen der Schmalenbach-Gesellschaft
für Betriebswirtschaft e.V. (2001)
Brand Brand image Itami (1991) and IASB (2004b)
Intellectual property Stewart (1998) and Harrison and Sullivan (2000)
Competitive advantage Pablos (2003)
Reputation Michalisin et al. (2000)
Know-how Michalisin et al. (2000)
Rights Concessions Redovisnings Rådet (1995), LBK (1996) and Redovisnings Rådet (1998)
Patents Redovisnings Rådet (1995), LBK (1996) and Redovisnings Rådet (1998)
Licences LBK (1996), Redovisnings Rådet (1998), IASB (2004b), Redovisnings Rådet (1995) and
LBK (1996)
Trademarks LBK (1996), IASB (2004b), Redovisnings Rådet (1995) and IASB (2004b)
Tenancy agreements IASB (2004b)
Copyrights IASB (2004b)
Covenants not to complete IASB (2004b)
Franchise IASB (2004b)
Future interests IASB (2004b)
Operating rights
Patents
Supplier Supplier capital Arbeitskreis Immaterielle Werte im Rechnungswesen der Schmalenbach-Gesellschaft
für Betriebswirtschaft e.V. (2001)
Investor Investor capital Arbeitskreis Immaterielle Werte im Rechnungswesen der Schmalenbach-Gesellschaft
für Betriebswirtschaft e.V. (2001)
Stakeholder resources Marr and Schiuma (2001)
Notes: This classification is derived from Table III. (Record masters (IAS 38), prepaid taxes (Rekneskapslova av 17. juli (Norway), assets and
endowments (Andriessen and Tissen), primary and management processes (Andriessen and Tissen) are excluded as they are either unclear, or only exist
in isolated cases
capital
Intellectual

Table V.
631
JIC
9,4

632

Figure 2.
Proposed IC reporting
system

This definition may not be the most appropriate but it does help in reducing ambiguity
in the understanding of IC (IA).
Numerous researchers have attempted to categories intangibles, and recent
development is positive as there has been a general convergence towards a
three-grouped framework consisting of:
(1) human capital;
(2) organizational (or structural) capital; and
(3) relational capital; based on Sveiby (1997), MERITUM (2002), and Bontis (2002).

A fourth group, IP capital is increasingly being used to indicate development and

commercilization of products and services, and it can also indicate economic rent to
implementers of IC. Researchers have also developed various models to measure and
manage intangibles, and they were constructed for different purposes. Many of these
are too broadly focused and are often qualitative, and hence, fail to offer any objective
measurement usefulness.
The study also found that most publications still lack a theoretical foundation and
practical usefulness and lack of in-dept study of IC categorization and reporting. Even
the few that do, they are quite abstract or they talked about theories on too broad
context that do not address how they relate to practical matters. This finding is
consistent with prior studies (Grant, 1997; Johansson et al., 2001; Mouritsen et al., 2002; Intellectual
Wood, 2003; Kaufmann and Schneider, 2004; Marr, 2004; Marr and Adams, 2004). capital
Nevertheless, this research has shown that a more formal method in the classifying
of IC for reporting purposes is possible. The rationale behind the study of IC for this
paper is not new, but the approach taken is quite different from existing literature.
However, there are many issues and avenues of discussion of IC that are not found in
other literature. For instance, since IC is not physical, the author suggests that a 633
classification approach instead of a definitional approach provides a better way to
identify IC, and that since IC are drivers of growth and value creation, IC reporting can
be achieved by following a value-added approach rather than one that is based on
past-economic transactions. Thus, this paper extends previous studies by using a
different approach in the study of IC and the author argues how these approaches can
be viewed as a contribution to the literature on IC.
The author recognizes that there are also limitations on this research. Attempts
have been made to improve the definition of IC (IA) through classification and also
suggestions of their measurements are to be more attuned towards value creation,
however, there is still a lack of a more theoretical approach in rationalizing class,
attributes and relation in formalizing the taxonomy of IC, and a more theoretical-based
approach in developing the reporting models. These limitations (issues) should provide
the motivation for future research in the definition, categorization and reporting of IC.

Notes
1. They cite the first publication on intangibles/intellectual capital appeared in Fortune
magazine in 1991 and the first book by Hudson (1993), Intellectual Capital: How to Build It,
Enhance It and Use It and now the Journal of Intellectual Capital. However, investigation of
research and development costs started much earlier – Grabowski and Muellar (1978).
2. For the purpose of this paper, categories and classes are treated as synonymous, and
similarly, categorization is synonymous with classification.
3. In Scandinavia, purchased goodwill should be amortized over a period not exceeding five
years, the ASB and the IASB, the period of goodwill amortization should not exceed 20
years, and for the FASB, the limit is less than 40 years. For all cases, a longer amortization
period is permitted provided there is good reason for doing so.
4. The author reviewed the major literature using a five-prone approach. He first used the
ProQuest search keys on “intellectual capital,” “intellectual property,” “intellectual
knowledge,” “intangible assets,” “intangibles,” “intangible resources,” “invisible assets” in
searching multiple electronic databases covering a wide range of journals. He then
conducted a manual search covering the major journals such as Measuring Business
Excellence, Accounting Reviews, Journal of Accounting Research, Journal of Accounting and
Economics, Accounting Horizon, Contemporary Accounting Research, Review of Accounting
Studies, Accounting, Organisation and Society, Journal of Banking, Finance and Accounting,
British Accounting Review, Accounting and Finance, Abacus. Since, Kaufmann and
Schneider (2004) have searched the Academy of Management Journal, Academy of
Management Review, Administrative Science Quarterly, Harvard Business Review, Journal of
International Business Studies, Strategic Management Journal, and the Journal of Intellectual
Capital for the period 1997 to 2003, he conducted a manual search before January 1997 and
from June 2003 onwards. Next, he searched the sites for FASB, ASB and IASB concerning
any statements of concepts, accounting statements and reporting relating to intangible
assets. Finally, he conducted a world-wide web search using the same key search in locating
for information on intangibles across countries.
JIC 5. First issued in 1998.
9,4 6. Which has been funded by the European Union, various European companies (e.g. Shell,
ATP and Dansk System Industri A/S), conducted by researchers from Spain, France,
Denmark, Finland, Norway and Sweden (e.g. IADE Autonomous University of Madrid,
University of Seville, Groupe HEC (France), Copenhagen Business School, the Research
Institute of Finnish Economy, the Swedish School of Economics and Business
Administration, and Stockholm University, and the Norwegian School of Management).
634
7. CERIAS is the world’s foremost university center for multidisciplinary research and
education in areas of information security (Library of Congress, 1995).
8. First reported in 1994 but formalized in 1997 (Skandia Insurance Services, 1997).

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Further reading
Daum, J.H. (2003), “Intellectual capital statements: basis fur Rechnungswesen und
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Kothari, S.P., Laguerre, T. and Leone, A. (1998), “Capitalization versus expensing: evidence on
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SFASC (2001), Intangible Assets, SFASC No. 15, Swedish Financial Accounting Standards
Council – SFASC, Stockholm.
Sveiby, K.E. (2006), “The Swedish Community of Practice”, qKarl-Erik Sveiby, available at;
www.sveiby.com/articles/CompaniestoLearnFrom.html

Corresponding author
Kwee Keong Choong can be contacted at: k.choong@latrobe.edu.au

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