AcSEC Software Proposal to Have Major Effect
T he American Institute of CPAs accounting standards executive committee issued an exposure draft of a Statement of Position, Accounting for the Costs of Computer Software Developed or Obtained for Internal Use . The ED proposes that certain costs be capitalized as long-lived assets, although many companies have been expensing these costs.
"Companies would have to set up cost accumulation mechanisms they might not have," Philip D. Ameen, chairman of the AcSEC internal-use software costs task force, told the Journal . "Larger companies likely have such mechanisms in place for inventories or capital projects and would only have to make modifications to adapt these to software." Ameen said this was the case at General Electric, where he is vice-president and comptroller. A smaller company, however, might have to take a close look at cost accumulation methods.
Ameen said the exposure draft might not receive the volume of comment letters it deserves. "People just dont realize how widespread the implications are," he said. "The entire underlying concept of this statement is controversial." The ED touches on ongoing controversies over soft assets, and the Financial Accounting Standards Board has expressed some concern about the long-lived asset classification proposed in the draft. Ameen said he believes some companies will object to the ED because they are also expensing these costs for tax purposes. "The possible implications on cash flow will concern some enterprises."
Finely honed definitions
The proposed statement would not change existing FASB pronouncements; costs for non-internal-use software would not be affected. CPAs and companies may want especially to look at appendix A, which gives 20 examples of what is and is not an internal-use situation. An example of internal-use costs: an entity develops software that helps it improve cash management, which may allow the entity to earn more revenue. An example of a non-internal-use cost: An entity sells software required to operate its products, such as video cassette recorders or voice-mail systems.
A more detailed discussion of this ED will appear in an upcoming issue of the Journal.
One free copy of the ED (product no. 800108JA) may be ordered from
the AICPA Order Department, 800-862-4272. It is also on the
Accountants Forum in the accounting library and on the AICPA Web site
(http:// www.aicpa.org) in the accounting standards area. Comments are
due by April 17.
Do the Right Thing
B usiness ethics is not only a matter of whats right or whats legal but also a matter of the bottom line. So argues Larry Ponemon, CPA, CMA, CIA, CFE, holder of a doctorate in accounting and ethics. Hes the national director of KPMG Peat Marwicks business ethics services group. "If you have a company with problems such as sexual harassment or diversity clashes, its likely there are problems that will find their way to the financial statements," Ponemon told the Journal . "Our benchmarking studies have identified links"red flags"between a corporations culture and its financial statements."
The in-house CPAs role
Although Ponemon and his staff assess ethics-related business risk in their audits, CPAs do not have to wait until their companies are audited to effect changes. They can head off potential problems before they develop. Ponemon says one of the more insidious problems occurs when good employees are pressured. "Controllers or chief financial officers should look at their staffs: Have there been downsizings lately, forcing people to work so hard quality is diminishing? Have performance pressures or incentives pushed people over the edge?"
Among the issues a CFO or other CPA in a supervisory position can look at are quality of work, the type and frequency of errors and the consistency between the entitys code of conduct and the employees view. The CPA could develop a self-assessment test to make the employees more sensitive to their ethical roles within the company. Performance measures can identify employees being pushed too far. "Ask people you respect in the company how they view the company," advises Ponemon.
Help is a mouse-click away
More details on business ethics can be found at KPMGs ethics Web site: http://www.us.kpmg.com/ethics . Online is Integrity , a newsletter that explains, for example, how to create a positive ethical climate at a company and how to set up a useful business ethics process. Also online are sample case studies in business ethics. The site explains how the existence of an in-house ethics program can mitigate a companys fine if the entity is convicted in federal court of criminal misconduct. There are also details on how KPMG assesses a companys business practices. Information on the site can help the CFO "take stock and fix a problem"before it hits the financial statement," says Ponemon.