20 years ago this summer the 9/11 terrorist attacks destroyed two iconic skyscrapers in lower Manhattan along with nearly everyone and everything within them as they collapsed. As an analyst with Gartner at the time, advising clients on data and analytics strategies and technologies, I started receiving inquiries from business and technology leaders whose operations had been in the World Trade Center. During these calls our clients lamented, not only the tragic loss of life and property but also the loss of their data.
March 31st may now be “World Backup Day,” however in 2001 cloud data storage and remote backups were not nearly as ubiquitous or requisite as they are today. As such, many of these businesses lost vital information assets. Some lost data about their customers, their business transaction, their contracts, and even employee data. It became an existential situation for some businesses. As one client abashedly admitted, “I don’t mean to be callous, but we will have the ability to hire new employees. However, we cannot recreate or reacquire destroyed data.” And while certainly the loss of life was incalculable, some businesses endeavored to calculate the value of their data lost in addition to other property. Why? Well, to submit Insurance claims.
Yes, some of these businesses filed Insurance claims which included the estimated value of the data lost, or the income lost as a result of destroyed data. The response from the insurance industry was two-fold: First, insurance companies roundly denied these claims, arguing that data wasn’t considered property and therefore was not covered by their property and casualty (P&C) policies. Then, to add insult to injury, the U.S. insurance standards body, the Insurance Service Office, updated the commercial general liability (CGL) policy template to explicitly exclude electronic data from P&C policies. When did it do this? October of 2001, barely a month after 9/11.
Not to be outdone, a few years later the accounting profession updated a key financial standard, International accounting Standard 38 (IAS-38) explicitly stating that certain intangibles including customer lists and the like (interpreted by accountants as “any electronic data”) cannot be capitalized. In short, the value of a company’s data assets, other than in rare circumstances, cannot be reported on auditable financial statements.
Clearly, however, data meets the criteria of an asset. Accounting standards define an asset as something owned and/or controlled, exchangeable for cash, and that generates probable future economic benefits. Yet it would seem that the accounting profession instead has chosen to double-down on its antiquated and arcane notions of data as something other than an asset.
Ironically, just two months earlier, on Wednesday, July 19, 2000, five gentlemen had filed into the chambers of the U.S. Senate Committee on Banking and proceeded to annihilate tenets of our antiquated accounting system. They included the chairman of the American Institute of Certified Public Accountants (AICPA), a major accounting firm senior partner, a professor of accounting from New York University and others. Even the name of the hearing didn’t soft-pedal what this was about. In the “Hearing on Adapting a 1930’s Financial Reporting Model to the 21st Century,” one after another experts berated the accounting profession for its failure to keep up with changes in the global economy. These changes, they argued, had rendered classic accounting practices ineffectual at gauging what has become the largest source of value in businesses today: intangible assets.
