The accounting standards that have been introduced recently recognize the financial role of brands and reflect the value that brands and other intangibles add to the bottom line. AS 26 refers to a range of intangible resources, including brands, patents, copyrights, licenses and computer softwares. AS 28 states that at each balance sheet date, management should consider whether there is any indication that an asset has been impaired. Understanding these standards is necessary for effective value- based brand tracking for enhanced brand management.

A year ago ICAI issued two new Accounting Standards, AS 26 and AS 28. AS 26 comes into force this year, whilst AS 28 follows suit next year. Both announcements will have profound ramifications particularly in the area of mergers and acquisitions. The introduction of the new standards indicates India is rapidly catching up with other developed economies that have long realized the significant value creation capabilities of soft assets, particularly the brand.

Alongside the new legal standards that recognize service trademarks, the regulatory environment is evolving to acknowledge the country's new value creatorsthe intangible assets.

Globally, the wake up call came in the 1980s, when corporate raiders and asset strippers targeted brand rich companies and paid significantly more than their net asset value. This resulted in huge `goodwill' values, which needed to be accounted for. Alarm bells rang in the boardrooms of many underperforming branded goods companies as directors realized there was a clear need for a method of accounting for brands which would recognize their true value in the balance sheet, and more importantly their ability to drive wealth creation. Brands form a significant part of this "unexplained value". Other intangibles such as patents, customer lists, licenses, know-how and major contracts also have a role to play.

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