4 ms·

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

Reason077 1y ago
Exactly. And if you’re more profitable on paper, you have to pay more tax, making you even less profitable in reality.
trhway 1y ago
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.
- itsoktocry 1y ago
  >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.
  - trhway 1y ago
    Except for example the millions of stock market casual participants.
  - kgwgk 1y ago
    People is getting fooled by "adjusted" earnings that reduce salaries "on paper" by hiding the "non cash" component.
  - youngtaff 1y ago
    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
pclmulqdq 1y ago
"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.
- coderatlarge 1y ago
  i think people in tech are usually focused on free cash flow, aka playing around money.
  - disgruntledphd2 1y ago
    Tech likes free cash flow because share based compensation isn't included in it.
hollerith 1y ago
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).

Reason077 1y ago

Exactly. And if you’re more profitable on paper, you have to pay more tax, making you even less profitable in reality.

trhway 1y ago

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.

itsoktocry 1y ago
>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.
- trhway 1y ago
  Except for example the millions of stock market casual participants.
- kgwgk 1y ago
  People is getting fooled by "adjusted" earnings that reduce salaries "on paper" by hiding the "non cash" component.
- youngtaff 1y ago
  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

pclmulqdq 1y ago

"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.

coderatlarge 1y ago
i think people in tech are usually focused on free cash flow, aka playing around money.
- disgruntledphd2 1y ago
  Tech likes free cash flow because share based compensation isn't included in it.

hollerith 1y ago

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).