Data is becoming a commodity. Firms now realize that collective data are valuable resources in today’s economic landscape. With this, firm managers are calling upon the services of data valuation to provide a proper assessment of the database’s value. But to understand why data valuation is becoming an integral process in businesses, one must understand why information systems are crucial.
Information Systems Contribute Success
The problem with accounting policies is how it does not account for non-monetary assets on financial reports. Thus the balance sheets will not present the CEO’s exceptional talents or the firm’s industrious workforce. There aren’t enough parameters to assess the monetary value of these aspects. However impactful their contributions to the firm are, their efforts are simply immeasurable in monetary means.
This conundrum is something that the firm’s arrays of data also face. Databases are crucial in a firm’s operating business, and there are visible manifestations of how information systems are beneficial. The question stands, how should the company account for and represent an important aspect of the company that lacks monetary value?
Information Databases are Assets
According to the 2018 definition in the conceptual accounting framework, assets are entity-owned resources bearing economic value. With this description, managers should consider information databases as assets for they bring value to the company.
By definition, databases and information systems fit the description as an asset because of their integral importance in a contemporary industrial setting. Like any intangible assets, databases appreciate and depreciate too. Information systems depreciate throughout their useful life, thus the need to amortize them as per the firm’s accounting treatment.
As such, data valuation can be an important process for firms with information systems at the core of the operating business. Data valuation assigns a monetary value to the database so that it shall reflect the database’s contributory worth. This process is possible with IT associates and Accountant’s joint appraisals.
Information System is an Industry
The age of the internet compels firms to create and consume information and data. It’s in this age of consumerism that transforms data into an important commodity in the contemporary premise. Businesses and brands that dominate the online presence have their business model run on their core inputs of data analytics.
On one end of the range are companies that feed on data analytics and information, mostly about their consumers. On the other end are firms that collect data information from online users. There is a demand and supply and a prospect of economic trades of data.
Thus, it’s not a stretch to claim that there is an industry revolving around data trading. When there’s an economic transaction, there should be corresponding monetary values that legal tenders can compensate for.
Data Valuation Aids During Merger and Acquisition
Mergers and Acquisitions are normal events in the corporate world, and there are many reasons why such a business phenomenon exists. No matter the cause, the point is that assets will combine just as the businesses will merge as one entity. This calls for a re-assessment of the assets’ worth, databases, and information system included through data valuations.