By Gary Allemann, Managing Director at Master Data Management (MDM)
While IT staff talk about ‘data as an asset’ rather glibly in the boardroom, the value of digital information in an organisation is interpreted quite differently from the accounting department’s perspective. Traditionally data could be quantified in terms of traditional storage, backup, data recovery and in-house management costs, but there are questions abound about its actual recognition as a value asset in the field of accounting. How do you manage data from a tax perspective? How do you measure the value of data throughout its useful life cycle? Importantly, how do you credibly depreciate these data assets on the balance sheet?
The definition of an asset can be broadly defined as ‘something that generates money’. Quality data underpin every aspect of a successful organisation’s business operations, whether it is to derive income, manage costs or mitigate risk. The analysis of data allows companies to explore new and existing customer bases and tap into new markets with promising value propositions. In fact, many experts view quality data as the differentiator that sets successful and profitable companies apart from those who are towing the line, or worse, threading water in today’s troubled economic times.
These issues were raised recently when the French Government put the proposed idea forward to impose tax on data collection practices employed by organisations and thus include ‘data as an asset’ on the income tax balance sheet.
The Government argued that the value and income from data collection and resale can be clearly calculated by organisations that derive monetary gains from these information assets, and wants to look at possibilities of how to tap into those revenue streams generated by French data. This not only set the cat amongst the pigeons, but also highlighted the overriding consideration whether the data that organisations collect and use is truly managed as an asset to the company.
Surprisingly, there are still many businesses that see the value of data merely as an afterthought. They are already too pre-occupied with fixing operational inefficiencies where employee roles and duties are duplicated, or addressing critical operational tasks that were lost in the business process. This re-active approach not only increases the cost of doing business but also potentially exposes an organisation to risk, be it through lack of customer retention or legal recourse.
So how do you determine the value of your data? The IT and Accounting Departments should start engaging with each other on this issue to accurately quantify data as an asset and if not, it could have some serious implications in the future if not properly addressed.
Much like the French Government’s explorations in examining available data to address potential ‘hidden losses’ in tax revenues, governing bodies could take the lead and make decisions on data management practices that add additional tax burdens on companies. On an operational level, if data is not treated as an asset by an organisation, it then becomes more difficult to justify to make investments in that data and to improve its ability to deliver real business value.
So how does one make the correct investment in data if one cannot account for the value of data? There are business environments where data is clearly and unquestionably an asset, for example, data is collected, analysed and repackaged into a new product. However, not all of an organisation’s data should be treated as an asset, but only the information that it generates, and has the potential to generate revenue while cutting costs and mitigating credit, legislative and operational risk. Data that is not serving the business is in fact a liability, a pure expense because it has to be stored, managed, migrated and aligned with current compliance regulations.
In closing, the accounting industry has got a vital role to play on how to justify the true value for data. In the information era, this is becoming more and more prominent as we make the shift from the industrial age to the information age. Our industrial assets are becoming less relevant, but the accounting world yet has to make that transition to get the best and most favourable terms for information assets.