Data As an Asset

Nigel asks on DAMA International LinkedIn website:   

... I wonder if anyone can help. I’m looking for some information. The DAMA Body of knowledge makes it abundantly clear that Data is an “asset”. This got me thinking as I’ve always seen it as a resource. Regardless, assets tend to be reflected on the balance sheets of most companies. Is anyone aware of ANY company, anywhere, that has valued its data as an asset and then reflect that on its balance sheet / company books? I suspect it may be true of companies whose "stock in trade" is data or information, but for "normal" companies in the retail or financial services industry, I'd be curious if anyone has matured to this extent.

Everest responds:

Wow.  What a great discussion.  This is the first time I have seen it.  Let me add my two cents.  Perhaps I can lend some clarity.  Information (in its syntactic representation as data) is of value to some people and for some purposes.  Whether or not its valuation should be put on the balance sheet is essentially an accounting question.  Much of the discussion above got off the balance sheet. 

My accounting professor hammered home the point that we must always ask “what are you trying to show and why – for what purpose?“  Purpose could be for management decision making, SEC filing, income tax determination, stockholders, for possible sale or acquisition.  Accountants do things differently for different purposes.

Several companies whose product is information do capitalize the cost of developing (and maintaining) their databases of information.  That allows the accountants to spread (amortize) the costs over future periods when the revenues are realized.  Matching costs in the same period as the revenue is generated is a fundamental principle of accounting.

With other types of organizations, we might argue that if data is an asset why is it not on the balance sheet.  However, the connection with the future is rather tenuous.  Hence we expense the costs, charging them to the period in which they were incurred.  That is partly justified because database maintenance (and enhancement) is an ongoing expense.  What is the benefit of pushing the expense to a future time period?  It is like a training budget for human resources.  The benefit is realized when employees work for the company in the future and can make a more valuable contribution with training (and experience).  We would acknowledge that people are a valuable asset to an organization, but not that we should, therefore, capitalize their salaries because they will be able to help us generate revenue in future time periods.

When we say “data is an asset" what we are really saying is that data is something we have (it exists) and it is of value.  Just because it is of value, does not mean it should be reflected on the balance as an asset.  The question suggests two different meanings for the word asset - the narrow one strictly from an accounting perspective (to allocate costs to some future time period in which revenues are derived), and a broader, more general case of simply “something of value." 

Income tax is another argument for not capitalizing data development and maintenance expenses.  To minimize taxes, we try to write off expenses as early as possible, that is, in the period in which they are incurred.  (Accountants generally go further and charge it as an expense when the obligation to pay is incurred, as with a credit card purchase.)   That way it offsets current revenue so that we don‘t have to pay income tax on it.  If the tax laws allow early write off of expenses (e.g., schedule 179 assets) but that does not accurately reflect the reality of matching costs with revenues, then we will keep two sets of books - one for the tax collector, and one for corporate managers and decision making.