The Role Of Intellectual Capital Information On The Narrative Sections Of Corporate Annual Reports

1678 Words7 Pages
Advanced Financial Accounting ACCU9AA
Student No.: 1931783
13 November, 2014

Coursework Essay
Why would companies choose to disclose Intellectual Capital information in the narrative sections of corporate annual reports?

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Introduction
The importance of Intellectual Capital information (IC) has been increased in the current economic. It refers to intangible resources which create company value (Ashton, 2005). Human capital, structural capital and relational capital are the main categories of IC (Meritum 2002). There are some factors of the IC, such as employee knowledge and innovative capacities (Usoff, Thibodeau, Burnaby; 2002). This is an “unrecorded value” of an company which is not shown
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Analytical researches will based on the competition (Verrecchia, 1983; Darrough and Stoughton, 1990) and firm value (Hughes, 1986). On the other hand, Empirical research will be mainly focused on the impact of the firm characteristics (Cerf, 1961). Elliott and Jacobson (1994) also claims that there are three benefit of business information disclosure, the entity’s interests, Non-owner investors’ interests and the national interest.

The first part of the essay will be focusing on three categories of IC. Then, it will be discussing the relationship between IC and Market-to-book ratios. Next, it will be focusing on the future benefit of voluntary disclosure.

Human Capital
Human capital plays a considerable role in the economic environments. It is not cash, assets, but it is people, which are the critical differentiators of a business enterprise (Fiz-enz, 2000). It is an organisation’s possess individual tacit knowledge (Nelson and Winter, 1982). There are four factors involved by human capital: genetic inheritance, education, experience and attitudes about life and business (Hudson, 1993). All of these factors are intangible and can be invaluable. Human Capital is a source of innovation and strategic renewal, such as improving personal skills, re-engineering new process or just daydreaming at the office (Hudson, 1993). According to Figure 1 (Bontis, 1998), Human Capital is about the intellect of human. It is an internal control and development
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