Efforts to clean up software industry accounting practices in the post-Enron economy are meeting with a mixed reception.
Earlier this week, Peoplesoft said it opposed efforts to account for employee stock options as expenses. Many companies expense options in a bid to improve investor confidence in their balance sheets. In the past two months alone, General Electric., Amazon.com and Coca-Cola have decided to take this route.
"There is no change in the accounting standards related to stock options," he said "Obviously our industry should move in a consistent way, because otherwise you're not going to get any comparability between results. So we'll see what the industry chooses to do or what the requirements are."
But Microsoft chairman Bill Gates has dismissed the practice. "I don't think a change in the way the accounts are done would have some major impact on technology,” he added. “The numbers are there in every quarterly report. There's full disclosure. So it's hard to think: would that make some dramatic change in behaviour? We'll have to see if that comes to pass. But I'm not predicting some dramatic effect one way or another."
In fact, if Microsoft had expensed its stock options, it would be worse off. Fourth quarter net income would have been $903 million instead of $1.53 billion.
But in Germany there is considerable resistance among US –listed companies about changes to accounting and reporting practices. The German industry association BDI – which includes SAP as a member – is to write to the US Securities and Exchange Commission to complain that the changes are not consistent with German legislation and business practice.
Among the changes objected to are new provisions obliging chief executives and chief financial officers to swear an oath certifying their accounts as accurate and fair. These have been taken up by the likes of Oracle CEO Larry Ellison and Siebel boss Tom Siebel.
German firms are also complaining about rules that would give regulators the power to demand working audit papers from a company's auditor, even where the auditor is a non-U.S. firm.
The BDI said in a statement that it wanted the SEC to investigate more closely potential conflicts with foreign laws. It cited the unified board of director system used by U.S. and UK companies compared with the German system, which combines a management board and separate supervisory board representing shareholders and worker representatives.
SAP’s current options programme is configured in such a way that it does not have to be included under 'expenditure' in the balance sheet. Previous programs versions included a cash element which mean that the costs had to be included in its balance sheet.
But according to SAP this damaged the company in comparisons with U.S. competitors which were working with pure stock-option programs. Under GAAP (General Accepted Accounting Principles), they only had to detail the costs in an appendix to the balance sheets.