January 1 2005 saw the introduction of new European legislation requiring all European listed companies to report the value of all acquired intangible assets, such as brands, on their balance sheets. If you are one of most marketers who didn't know this, the chances are you are already losing control of your brands.

Complying with this mandatory legislation, the International Financial Reporting Standards (IFRS), will have significant long term strategic implications for brands and those responsible for them, so it is essential marketers get involved in the brand valuation process from the outset. Marketers are already on the back foot, however, as the standards were written by accountants without consultation from the marketing fraternity. Deciphering what appears to be deliberately periphrastic and convoluted language, inaccessible to anyone without an ACCA variant after their name, is not, however, essential to generate benefit.

There are two main reasons the accountants want to gain control of brands. Firstly, intangible assets such as brands generally account for the majority of a company's market value: 70% for Disney, 76% for Nike, 85% for Heinz and 98% for Microsoft. Secondly, brands are the vehicle through which companies generate cash: facilitating entry to new markets and categories, allowing premiums to be charged and aiding the consumer decision making process through differentiation. Accountants want to be in charge of the company's most valuable asset as well as the allocation of resource that fuels it.

Previously, intangible assets were lumped together on the balance sheet under goodwill. This goodwill is now being separated out into measurable and identifiable intangible assets, such as brands, copyrights and patents. This must be done for all acquisitions post 31 March 2004 for the balance sheet in 2005. Historically acquired brands can be reported the first time a company applies IFRS, but you only get the one chance - the second time you apply IFRS you are not allowed to retrospectively restate. Internally generated brands can be valued but are not allowed to be put on the balance sheet.

Whitbread, for example, must value the Premier Lodge brand bought as part of the £505m purchase of the budget hotel business in July 2004 but it does not have to value the Travel Inn brand it also owns as this was not acquired since 31 March 2004. Should Baxter's, however, now buy a brand, it has no requirement to value it as it is a private company. Baxter's may however choose to value the brand if it had plans to float, if it was seeking investment from banks which might require consistency of reporting or if it wanted to effectively monitor return on investment and manage the brand's value.

It's amazing, but invariably brand valuations are carried out in complete isolation from the people that create and manage them. No market awareness, no competitive parity, no consumer perceptions, no reputation analysis, no brand research whatsoever. And because there's no input from the marketing department into the brand valuation process there's no point - the figures are in effect, meaningless. Feeding all this relevant information into the brand valuation methodology will produce a robust figure that is useful in a number of ways. There is also rarely any additional cost because, as with valuing the brands of ebookers and Allied Domecq, all necessary research is generally already held internally.

One of the main strategic benefits of applying IFRS for brands is the opportunity to construct a value contribution analysis tool for use in on-going brand management. If a brand is valued in the different markets, categories and territories it operates in - the sum of which is the total brand value - the contribution each makes to the overall brand value is easily identified. Taking this a stage further, each of the individual brand values are constructed from parameters such as brand awareness, brand relevance, brand differentiation, brand preference and brand loyalty. Each individual brand value can then be analysed to find what is driving the value and what needs attention. As well as helping identify an individual brand's strengths and weaknesses, valuing brands for IFRS is especially useful for analysing the value contribution of brands in a portfolio. United Biscuits, for example, may find this an effective strategy to incorporate into its mandatory brand valuations for IFRS so it can effectively monitor the value and performance of the Twiglets, Thai Bites and Jacob's Cream Cracker brands it bought in September 2004.

 
Every year, the brands on the balance sheet must be measured for impairment under IFRS - to see if the brand has lost value. An increase in brand value, however, can not be reported. This can be used as a robust benchmark of return on investment (ROI). Impairment testing will reveal how brands and the parameters that drive the valuation are performing. This is useful for analysing the effectiveness of brand investment, monitoring the performance of the people responsible for them and aiding the strategic allocation of resource. PZ Cussons, for example, has an excellent opportunity to monitor the value of the Charles Worthington haircare brand it purchased in July 2004 for over £25m, as the brand must be valued for the transition to IFRS.

Communicating the results of the brand valuation to stakeholders can be an effective strategy to impact the share price and generate sales. The effect of informing city analysts and journalists of the brand value and strategy will be reflected in the share price. Shareholders and potential investors too, seeing positive results and PR, will assume greater confidence in the company. Also, employees and customers will have a fuller appreciation of the brand value, manifesting itself in increased sales, profits and cash flows.

Brand valuations for IFRS will also assist in the strategic management of internal and external licensing programmes. Global companies such as Nestlé, which licenses its brands centrally from Switzerland, often license their brands to subsidiaries in different territories. With a value given to the brand, the licensees will be forced to both appreciate and develop the assets value more comprehensively as well as enabling the parent company to measure profit contributions. Also, with the value of intangible assets on the balance sheet, comparable values for setting royalty rates will be available more readily.

Although there is a danger the figure will be hopelessly inaccurate, the accountants are keen to gain control of brands by valuing them without a marketing contribution. If marketers are to control the brands they consider themselves responsible for, it is imperative that they get and stay involved in the brand valuation process. Greater financial visibility will increase corporate understanding of the value that brands and those responsible for them contribute to the enterprise. And unless marketers get involved from the outset, it will not be them responsible.