Comment by youngtaff
6 months ago
I worked for a UK company that amortised it’s development costs… it led to the false belief that the company was profitable when it really wasn’t
6 months ago
I worked for a UK company that amortised it’s development costs… it led to the false belief that the company was profitable when it really wasn’t
OK, but you've changed the topic from tax accounting to financial accounting/reporting.
In the US, it remains the case that programmers salaries must be treated as an expense (i.e., cannot be amortized) when calculating the company's income statement, balance sheet, etc. Not following that rule will get the accounting firm signing off on those financial reports in trouble (with the SEC, the Public Company Accounting Oversight Board, and maybe even the Justice Department if the purpose of the violation was to defraud investors).
"Profitable" in an accounting sense has nothing to do with your cash position. This is something that people in tech don't really seem to understand.
i think people in tech are usually focused on free cash flow, aka playing around money.
Tech likes free cash flow because share based compensation isn't included in it.
Yes, that is tremendously important aspect here - the US tech would look better on paper - higher paper profits due lower paper expenses - while getting increased cash flow stress due to decreased deductability of the salaries which are among the main expenses in software dev business.
>Yes, that is tremendously important aspect here - the US tech would look better on paper
It's completely unimportant. Nobody is getting fooled "on paper" by amortized salaries.
Except for example the millions of stock market casual participants.
People is getting fooled by "adjusted" earnings that reduce salaries "on paper" by hiding the "non cash" component.
Want a bet?
I’ve seen it used in UK listed companies to massage the profit numbers and make divisions of the company seem more profitable than they are
Exactly. And if you’re more profitable on paper, you have to pay more tax, making you even less profitable in reality.