WITH ALL THE SCRUTINY that public companies get these days, you would think there's little that isn't known about them. But that kind of knowledge may only scratch the surface of what composes corporations' true worth. Underneath all of the "hard" facts about plants and inventory and capital investment, some financial experts say, lies a mountain of soft data about such things as R&D, brands, patents and general know-how that traditional accounting methods don't capture.

The problem is that these so-called intangible assets -- which by some estimates could make up as much as 80 percent or more of a company's value -- have been so hard to measure that many companies, even if they realized their worth, have swept the matter under the rug.

They might not have that luxury much longer. Both the U.S. Securities and Exchange Commission (SEC) and Congress are looking into whether they should require companies to detail intangible assets more closely. That's needed, so the argument goes, to protect both investors and the companies. Investors are at risk because without knowing the impact of intangibles, a company might be overvalued and the stock wildly inflated. Companies are at risk from the other direction because they might otherwise be undervalued and find it more difficult than they should to attract capital.

It's an argument that Baruch Lev, a professor of accounting and finance at New York University's Stern School of Business and a true evangelist, has been making to anyone willing to listen. One of the most respected authorities on the issue, Lev has provided evidence to the SEC for its deliberations, and in July he testified before a Senate committee about the increasingly urgent need for companies to make fuller disclosure of intangibles.

Freelance Writer Heather Baukney recently spoke with Lev about the difficulties in identifying and measuring intangible assets, an issue that CIOs will increasingly have to grapple with as intangibles migrate into the IT realm.

CIO: How big is the gap between the actual value of companies and what their accounting systems show?

Lev: The market value of S&P 500 companies is more than six times what's on their books. This means that for every $6.50 or so of market value, only $1 appears on the books. It's extraordinary that the balance sheet number reflects only 15 percent or so of the value of these companies. And since this is the S&P 500, it includes about 80 percent of corporate America, a lot of financial institutions, low-tech, all the oil companies and retailers. This is not the new economy. And even if those who think that this market value is inflated are right, if you take 50 percent off the market capitalization, there is still a huge gap.

Investors have something to lose, of course, but they can protect themselves. It's really the companies themselves that are being hurt. When there are deficiencies in information, if investors don't know about intangibles, they are going to assume the worst. In capital

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