Taking the New Economy Into Account

Climate Spurs Accounting Task Force To Rethink Rules on Stock Value, Options and Recognition Of Revenue

One book on the current best-seller list is "First, Break All the Rules."

"Thinking outside the box" has been highly successful in turning technology ideas into thriving businesses, but the accounting profession, which sets the financial rules companies are supposed to live by, doesn't subscribe to this freewheeling thesis. Instead, where it feels firms are going too far, it proposes to redraw the box.

This clash of cultures has set off a heated debate among accountants, technology firms, Wall Street analysts and even "old economy" industries concerned that they will be damaged by proposed changes in the accounting rules.

The disputes cover issues ranging from mergers to stock options to revenue recognition, with technology firms arguing that wrong or inappropriate rules could derail one of the major engines of U.S. economic growth.

Many technology experts think that accounting rules that applied in an industrial economy are out of date in today's fast-paced marketplace and need to be changed. But they say the accounting hierarchy isn't listening to their concerns.

They cite the Financial Accounting Standards Board, the private group that writes the rules, and especially the FASB's Emerging Issues Task Force, which studies new problems and recommends solutions.

"Generally among those in the tech community there is worry about where accounting policy is moving," particularly with respect to intellectual property, such as computer programs, and other intangible assets, said Mark Gitenstein, a Washington attorney with a number of high-tech clients.

Some of the efforts to adapt rules to what high-tech firms are doing have alarmed old-economy companies, either because they, too, are moving into high tech or because the proposed rule changes have implications for the way they have traditionally accounted for parts of their business.

"These are no longer just new-economy issues. The distinction between the new and old economy is quickly blurring," said Paul Brownell of the National Venture Capital Association in Arlington.

Even steadfastly old-economy firms have reason to be concerned. For example, a rule on accounting for shipping and handling costs that might be appropriate for makers of computer disk drives could have unexpected ramifications for makers of giant steam turbines.