SMEs in Malaysia may be missing out on funding: ACCA
By Digital News Asia July 9, 2015
- ACCA research comes from collaboration between AIM and Nesta
- SMEs’ inability to value own investments in innovation a deterrent for growth
SMALL businesses may be missing out on accessing finance, investment opportunities and potential tax breaks because they are failing to properly measure and report the value of their ideas and innovations, according to the Association of Chartered Certified Accountants (ACCA).
A new ACCA (the Association of Chartered Certified Accountants) report produced by UK-based innovation foundation Nesta and IP valuation specialists Inngot has found that small businesses have particular difficulties recognising and reporting on ideas and innovations.
This is true even when they possess ‘hidden’ intellectual property (IP) through their investments in intangible assets, ACCA said in a statement, citing the report based on a pilot study of small and medium enterprises (SMEs) in Malaysia.
This prevents them from accessing finance and, in some instances, qualifying for government- supported funding schemes. For example, countries such as Malaysia, China, South Korea and Singapore offer lower tax rates for SMEs, while Ireland developed a ‘patent box’ tax break in the 1990s.
“We know that investment in innovation and intangible assets has been growing over the past few decades, but finance providers and banks have been unable to evolve the way they work in order to allow businesses to leverage their intangible assets to raise finance,” said Rosana Mirkovic, head of SME Policy at ACCA.
“This situation will become increasingly problematic as the gulf widens between the volume of intangibles built up in an SME, and the bank’s ability to exploit its financial value.
“Much of the challenge lies in the uncertainty around how to identify and measure intangibles and crucially, how this translates to tangible outputs and financial gains,” she added.
This research comes from a collaboration between the Malaysian Government’s Agensi Inovasi Malaysia (AIM) and Nesta, which developed a National Corporate Innovation Index (NCII) to help Malaysian companies become more innovative and make them more sustainable.
The NCII, which was originally aimed at larger, publicly-listed companies, was extended to SMEs following ACCA’s involvement.
The resulting report, Innovation, intangibles and integrated reporting: a pilot study of Malaysian SMEs (pic), shows that the accounting systems and practices of SMEs have made it harder for them than for larger businesses to create an effective inventory of intangible assets.
The report concludes that conventional management reporting systems are not ideally suited to business models centred on knowledge, or to producing the information increasingly wanted by sophisticated investors.
The report highlights better data collection will be required by SMEs to understand their IP.
Tools such as the NCII – and broader innovative accounting methodologies such as Integrated Reporting – are both potential routes to assist SMEs in understanding and accounting for their knowledge-based assets, ACCA said.
“The importance of innovation in corporates is another key value for the longevity of a business,” said AIM chief executive officer Mark Rozario (pic).
“AIM has always encouraged the growth of innovation for all businesses, as innovation is the key to the creation of business success and is vital for the durability of any business,” he added.
Innovation within companies in Malaysia is shown to have much room for improvement. According to the 2014 Global Innovation Index, Malaysia ranked 33rd in the world, which is a strong showing, but some distance behind its international and regional competitors (particularly Singapore, which ranked 7th).
ACCA deputy president Alexandra Chin, who is a practising accountant in Sabah with a large number of small business clients and who wrote the foreword for the report, said: “In order for SMEs to capitalise on opportunities for innovation, it is essential for them to be able to measure their return on innovation and be able to demonstrate its value to the owners and potential investors.
“Projects such as the NCII in Malaysia will help businesses to capture and measure the benefits of innovation and we look forward to contributing to the initiative to not only help Malaysian SMEs, but small businesses around the world,” she added.
ACCA’s report can be downloaded from www.accaglobal.com/small-business.
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