Having spent a fair amount of time in my previous corporate life advising management on capital versus expense accounting, I thought it might be a good time to share my thoughts with the thread.
First of all, it may be "Accounting 101" as various articles have pointed out in the WCOM issue, but it has been my experience that the accounting does become a bit of a pain in the ass. For example, lets say you are installing an enterprise-wide software package. How do treat the consultants installing the system? That's easy you say, it's a capital charge. But what if the consultants installing the system are also training users? Oh, then that is an expense, you say. So we will track their time to come up with the proper capital vs expense charges. But we have 100 consultants in 10 countries, too much work to track each person individually, so we will come up an allocation percentage and apply it across the board. And so on, and so on.
It has been my experience that the first question asked when considering a multi-million dollar project is not "What is the added value?" - it normally is "What is the capital vs expense breakdown?" The implication being that capital is not real money since it doesn't flow through the P&L immediately.
I bring this up because I would be concerned if the WCOM issue turned out to be a "gray area" issue. The last thing the market needs is for people to get ultra conservative in this accounting area, because it will surely slow spending even more.
Having said all this, I must say my warped accounting mind cannot figure a way to justify capitalizing telecom line costs, as appears to be the case at WCOM. |
