Worldwide government, firms and project teams is facing a difficult situation to measure the value creation through information technology. This essay argue that the challenges of measure value creation through IT are occur in three different levels which are Macro-economic level, Micro-economic level, and project level. Some studies and cases have been used to demonstrate those challenges. Although, the problems on current evaluation system can be fixed as we can find the reasons and drive of those problems. There is couple reasons result those challenges. For Macro-economic level and Micro-economic level, there is a lack of well-established classification and identification. Also, government do not have adequate data are due to the nature of IT, which results difficulty to collect the data. Finally, there are some general problems for measuring all intangible assets in accounting regulation. Some approaches have been introduced in this essay to address those challenges. Those approaches include value chain analysis, economic values, future market value, and cash flow return on investment. Also, government and regulation bodies should develop well-established code to guide the measuring of value creation through IT. Also, the examples about those in approaches in different countries and companies have been introduced to demonstrate the reliability.
All industrialised economies are moving from investment in physical assets such as low skilled labour to investment intangible assets (Blaug & Lekhi 2009, p. 3). AASB 138 Intangible Assets defined intangible assets as identifiable non-monetary asset without physical substance. This definition includes software (Australian International Financial Reporting Standards 2005, p. 1). The result of investment in intangible asset is arising knowledge-based capital, which would lead competitive advantage on R&D, design, brand equity, software, and human and organisational capital. For many companies, their investment in such intangible assets exceeds the investment in physical assets (OCED 2013, p. 3). As the twenty-first century coming, more and more businesses conducted over the Internet, with rapidly growing recently (Amit & Zott 2001, p. 493). They have gained highly competitive characteristics through information technology (IT). For those organisations, their intangible assets are existed based on Internet, which associated with IT to store, retrieve, transmit and manipulate data. However, currently businesses lack evaluation system for measuring the value creation of intangible assets associated with IT. Although, the problems on current evaluation system can be fixed as we can find the reasons and drive of those problems.
The rest of this essay is structured into four sections which are: the challenges in measure value creation activities through information technology (for accountant), why challenges, the approaches for addressing the problem, and conclusion. The first section would address several challenges on current accounting evaluating system for measuring value creation through information technology. Secondly, this article would identify the cause of challenges mentioned in the first section. The next one is about the way and recommendations to solve the problems mentioned in the first section based on the analysis in second section. Finally, there is a conclusion.
The challenges of measuring value creation activities through information technology (IT)
IT expenditure has become a major component for both developed and developing countries. In 2008, the total spending on IT around world is 3.4 trillion. Also, spending on IT operation generated 1.5% of a company’s revenue (Gillon & Hodgkinson 2008, p. 9). IT typically represents a major area of capital expenditure in economics and businesses of all sizes. Much value of IT and activities through IT lines in what accountancy practice refers to as ‘intangible assets’. Web-technology,…