What challenges does the digital economy bring to accounting?

Posted by ANNE JENY-CAZAVAN - Mar 22, 2018

The digital revolution and the dematerialization of the economy are under way, but what impact will this have on accounting? This blog presents a short summary of my policy paper “What impact will the digital economy have on accounting? The challenge of intangible assets’ recognition” (Jeny, 2017), where I aim to shed light on this issue by studying the possible accounting implications of the digital economy and, in particular, their impact on the role of intangible assets.

This digital revolution has paved the way for a new era of information, sparking a fourth industrial revolution, or "Industry 4.0” as it is also known (Schwab, 2017). It is mainly characterized by the processing of very large volumes of data thanks to the development of algorithms and mathematical models to support innovative technological solutions. This transformation is beginning to integrate business practices via the so-called platform economy and the emergence of global digital giants such as Google, Amazon, Facebook and Apple, as well as Uber, Airbnb, Alibaba and many others. But the accounting treatment of the transactions generated by these new players is stymied by the existing accounting frameworks. What are the limits of these frameworks? Do they take into account all of the characteristics of these digital transactions or do they need to be revised?

The bridge between this new digital context and firm value lies in knowledge management and is reflected in intellectual capital, a concept translated as intangible assets in financial accounting. However, traditional accounting practices do not allow for the identification and measurement of these "new" intangible assets, hence the importance of managing, measuring and disclosing such forms of intangible assets from a research perspective. All sectors are impacted by the new intermediary mechanisms resulting from the digital transformation, the arrival of the Internet and the emergence of what Rochet and Tirole (2006) refer to as “two-sided markets”. Cloud-computing, big data, block chain technology, among others, have reshuffled the deck where business transactions are concerned. The question is does this transformation exacerbate the existing problem of the recognition of intangible assets?

This policy paper therefore aims:

  • to take stock of the possible accounting impact of new transactions arising as a result of the digital economy, new intangible assets that generate value, and new risks specific to digital transactions; and
  • to provide a literature review of the main empirical works on the role of intangible assets in the relevance of accounting data and investors' understanding of these data. By intangible items, we mean all expenses incurred by the company that are of an intangible nature, whether they are considered as expenses, investments or intangible assets. These refer to R&D, patents and advertising expenditure. We do not deal with intangible expenses such as consumer satisfaction or human resources for which empirical results are still very rare and contradictory.


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