Are data intangibles?

“Data is one of the most misunderstood assets corporations possess.

It is largely unmeasured, mismanaged and underutilized.

It can be copied and shared infinitely at a cost approaching zero.

Data doesn’t get used up and generates more of itself when used.

It is what economists call a non rivalrous, non depleting asset”.

wrote the World Economic Forum in 2021.*

Any industry - telecommunications, finance, manufacturing, healthcare and even agriculture - is craving data to function, innovate and grow.

Data are not recognized as assets under the current IFRS (IAS 38 Intangible Assets).

Indirectly, IAS 38 addresses some aspects related to data and treats data related activities as expenditures, when generated internally and/or incurred during the research phase.

Casting a side glance at Chinese GAAP that has recently permitted recognition of data as intangible assets or inventories, a fair question is:

❓ Will data recognition under IFRS and other GAAPs follow soon?

Let`s have a look at the definition of an asset according to the IFRS Conceptual Framework.

1️⃣ An asset has potential to produce economic benefits.

In this regard, evidence from an external market (e.g. Shanghai Data Exchange) shall take a precedence over internal assumptions on data profitability to mark the criterion as fulfilled.

2️⃣ The entity must have a right to an asset, in other words: “We don’t put other people's assets on our balance sheet” **

👉 However, can

• person related data,
• weather data,
• data on agricultural yields, or
• data on transportation routes,***

belong exclusively to one entity, and if so, for how long?

Yet, some data – e.g. localization data for drinking water sources in dry climates resulting from research activities of an entity – will comply with the "right" requirement.

The right goes hand in hand with robust data protection.

Only companies that create truly safe data frameworks shall be allowed to treat them as assets.

3️⃣ Finally, take a brief look at the aspect of control related to assets:

Control links the resource to an entity.

An entity must have an ability to direct the use of an asset/ prevent others from doing so.

1️⃣ Control can be exercised by only one party.

🏭 An entity must have an ability to deploy an asset in its economic activities.

⚖ Control is enforced through legal rights.

💰 Future economic resources must flow to an entity.

📉 Control exposes an entity to variations in economic benefits.

Not all data will fulfill the criteria for asset recognition under the current or future IFRS pronouncements.

But recognition of certain data will become inevitable in the future.

Sources:

• WEF: Why measuring the value of data exchange really will matter. ** ScienceDirect/ Some thoughts on the recognition of intangible assets. *** examples from emerging data exchange markets in China, India and Colombia.