Prospects for Capitalization of Intangible Assets:
Intangible assets rose to prominence in the business world in the late twentieth century, and they will almost certainly continue to do so in the future. Intangible assets are inherently different from tangible assets (physical and financial). These differences are responsible for the unique potential of intangible assets to generate tremendous economic value and growth, both at the corporate level and at the national level.
Intangible asset investments, such as research and development (R&D) and software development, have increased significantly over the last two decades, while tangible asset investments (e.g., buildings, facilities, factory equipment) have remained largely unchanged. The shift toward intellectual capital investment is due to unprecedented developments in information and communication technology and the internet, as well as the frightening competition caused by market globalization. In modern times, value is not only related to the allocation of capital or tangible assets, but also to innovation and knowledge, which seem to be the main wealth-producing resources.
In R&D organizations, intangible assets are a key driver of innovation and organizational value. The allocation and distribution of intangible resources is a critical strategic decision for organizations. Intangible assets are identified as a key resource and driver of the organization's performance, value creation, competitive advantage, shareholder value and company growth.
Future economic benefits may flow from an intangible asset, including revenue from the sale of products or services, cost savings, and the benefits resulting from the use of the asset by the company. The use of intellectual property in the future production process, for example, may reduce future production or service costs rather than increase future revenue (for example, an online system that allows citizens to renew driver's licenses faster online will reduce the number of employees required in the office to perform this function while increasing processing speed).
In addition, capitalized software is capitalized first and then consumed instead of cashed out, which will result in lower reported expenses and therefore higher net income; notably, capitalization for GAAP does not necessitate capitalization for tax purposes. As a result, companies looking to show higher net income for software cost capitalization purposes prefer.
Intangible assets such as brands, licenses, customer-supplier relationships, patents and developed programs have become a key factor in the value of business in the KSA, in line with the Saudi Vision 2030 to diversify the Saudi economy. Stakeholders, including management, shareholders, and regulatory bodies, will continue to focus on the development, improvement, and protection of intangible assets in the near future, as the development, growth, and protection of such assets becomes a cornerstone for leading businesses and increasing their capital values.