Conflicting guidance: Will accounting rules impair corporate venture capital?

Article Abstract:

Venture capital firms have increased in number and the amount of venture capital available is growing faster than any other source of funds, because of the high returns frequently afforded by venture capital investments and the technological innovations realized from successful venture capital investments. However, some aspects of value accounting (the method of accounting that must be followed by venture capitalists, according to the American Institute of Certified Public Accountants) make financing new business ventures less attractive to major corporations. Value accounting is analyzed (and compared to equity accounting methods). Among the issues discussed are: recognition of impairment during the early stages of new business start-ups, current recognition of nonoperating losses, the use of value accounting methods by all forms of venture capital firms, and what form of operation constitutes the establishment of a corporate venture capital subsidiary.

Evaluation, Economic aspects, Small business, Investments, Risk management, Venture capital, Technological innovations, Managerial accounting, Controllership

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The FASB looks at accounting for stock options

Article Abstract:

The FASB is about to rule on the accounting of stock option grants, which now receive a favorable treatment. Executive stock options are difficult to assess in terms of value because of their inherent restrictions. FASB has proposed to apply the minimum value method, but this method is flawed because it does not include fluctuations in market value that could make the assessment of minimum value inaccurate, and because executive stock options only achieve real value after a stipulated time period. An alternative method to minimum value could be accounting which considers the taxation that executive stock options will generate as a conceptual starting point.

Compensation and benefits, Accounting and auditing, Corporations, Executives, Executive compensation, Incentive stock options

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Cost of capital revisited

Article Abstract:

The amount of money a company makes on its optimal alternative investment can be used to determine the cost of capital. It represents an always changing, dynamic changing value - the optimal-marginal theory which does not have any relation to the present capital structure or to historic information. The Statements on Management Accounting Number 4A on Practices and Techniques: Cost of Capital, published by the National Association of Accountants, summarizes the techniques for calculating average capital costs and the problems with those methods.

Methods, Capital

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