Accounting for knowledge assets: do we need a new financial statement?

Knowledge-based companies have suffered from the failure of the traditional financial reporting system to reflect knowledge assets on the balance shee t. Because of the level of uncertainty associated with knowledge-related ex penditures, accountants normally must classify them as expenses. This syste m was not unreasonable in the past, when assets were primarily tangible and it was normally clear what role these assets would play in providing benef its to the organization. In recent times, however, knowledge assets and oth er 'soft' assets have been increasingly important to success. We need a mec hanism that will reduce the need to make these capitalization/expense decis ions prematurely. I discuss the benefits of creating a new financial statem ent containing expenditures for which status as an asset or expense has not yet been resolved.