New Economy Business And Accounting.

• Author: Heffes, Ellen M.

The "New Economy" has brought business and accounting issues that are leaving many financial executives perplexed and at a loss for guidance. In an effort to identify the major issues and provide perspective on how they are impacting companies, FE spoke with Barbara Carbone of KPMG LLP.

Carbone is the National Industry Director, Software and Services, in KPMG's Information, Communications and Entertainment practice. She's co-author of a practical book on understanding relevant financial and reporting issues when accounting for e-business, Defining the Digital Future: Business and Accounting Issues.

What's different about accounting for the Internet, e-commerce or applications? Isn't it still just accounting?

Carbone: There's very little that's new, and for the most part, existing accounting rules and practices can be applied to these new types of businesses and transactions. A big difference is in some areas where the Emerging Issues Task Force (EITF) and the Financial Accounting Standards Board (FASB) are saying, "We've never focused on that specifically, and it's becoming more prevalent. Maybe we should consider it and develop some guidance."

A good example is accounting for shipping and handling costs. Ten or 20 years ago, the number was part of the cost of doing business, and it was relatively insignificant to a company. Exactly where and how it was reported in the financial statements of companies varied, but as [a] relatively insignificant [cost], nobody cared. Fast-forward to 2001, when some companies transact all of their business over the Internet and have very [few] costs other than shipping and handling. All of a sudden [this item] becomes significant to the financial statement.

Yet, for a direct mail or catalog business, shipping and handling have always been a big part of the business.

Carbone: Yes, and while there was an existing practice for catalog companies, I don't think people automatically referred to those practices when they were developing dot-com companies' practices. It's as if they saw themselves [doing something] new, so they made it up as they went along. It's become clear there is a lot of variety in practice and a desire for more consistency.

On that point, currently there are differences of opinions, and there will still be differences in accounting -- where costs are classified. But it's acceptable, as long as it's disclosed and as long as a company's policy is stated: "This is the policy we have. We include...