Financial Information Related to Dynamic Capabilities - The Corporate Innovation Platform

Abstract

The purpose of this paper is to suggest an empirically based model for identification, recognition and measurement of internally generated intangible assets (IIAs) that meets the fundamental qualitative characteristics of useful financial information. The paper sets out to empirically test observed relations reflecting new product development activities and their economic consequences in listed companies, by means of personal interviews with senior managers, selected on the basis of their knowledge in the specificities of the innovation process in their firm by means of a phenomenographic analysis the identified relations are conceptualized in terms of logically related categories. There seems to be a match between the identified observed relations and the recognition requirements that International Accounting Standard (IAS) 38.57 sets out, which indicates that the requirements are relevant and information meeting the requirements may faithfully represent what it purports to represent or reasonably can be expected to represent. By relating the recognition and measurement of IIAs to the proposed model the linkage between IIAs and related organizational mechanisms will be made more explicit which may improve the representational faithfulness of the financial information. One of the practical implications of this study is that an entity specific control system based on the recognition criteria presented in paragraph IAS 38.57 can improve the robustness of recognized IIAs arising from innovative activities. By building a bridge between the dynamic capability literature and the accounting literature the paper develops a new model of how to account for IIAs.