Evaluation of Measuring and Reporting Levels of Intellectual Capital Information in Saudi Corporations Annual Reports

(Alaa El-Din Mahmoud Zahran and Fouad Ahmed Alshekh Moubark)

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Abstract

The present financial accounting framework is criticized for being inadequate and failing to communicate important assets, particularly intangible assets and resources known as intellectual capital (IC) of today’s business. As a result, a huge value gap between the reported firm value in the financial reports and the value set by stock market. In the new knowledge economy environment, knowledge or IC preceded physical assets as a factor for economy wealth production. Firm IC plays a significant role in maintaining competitive advantage, which affects – in turn – the firms’ financial performance and market value. The main objective of this study is to evaluate the levels of measuring and reporting of IC information in Saudi corporations annual reports. The study has reviewed and evaluated the main models and measuring methods of IC in literature. It also evaluated the recent trends and practices of IC reporting. A survey was prepared, tested, and distributed in afield study conducted on Saudi corporations enlisted in Saudi stock market. The final sample size was 89 corporates. The results indicated that there are general shortage of the nature and the level of IC information measured and disclosed by Saudi Corporations in their annual reports. The study recommended that developing IC measures and reporting practices is needed to be able to compare firms is one of the key challenges for the accounting profession and researchers. Key words: Accounting measurement, Knowledge economy.
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