Cash Flows Rules Causing Misleading Valuations of Tech Firms?

FASB should add another project to its agenda on the statement of cash flows because current rules cause analysts to overvalue technology companies that aggressively use stock-based compensation to pay employees, some say. “Just like shell games, investors are investing in something that is not there,” Niall O’Malley, managing director, portfolio manager at Blue Point Investment Management, said on January 12. “Emerging and high-growth software companies often generate minimal returns on their income statement as they seek to gain market share. Investors rely on their cash flow from operations and free cash flow to value the company. Under current FASB accounting rules, investors and analysts are overvaluing companies that aggressively use stock-based compensation, since an ongoing operating expense is being added to operating cash flows and free cash flows.” In general, the topic generates a lot of attention because it involves billions of dollars — up to 8 % of total compensation for public companies in the United States. Under current U.S.. GAAP, stock-based compensation is recorded as a non-cash expense on the income statement. When creating the statement of cash flows, stock-based compensation gets added back because it is not viewed to be an actual cash outflow.


New Monthly Online Discussion Series Launched

The AICPA & CIMA has started a new monthly series of live one-hour online discussions focused on audit and accounting, the combined association announced on January 9. The AICPA A&A Focus Series is aimed at helping CPAs stay up to date on developments and critical issues in accounting, auditing, and assurance. CPAs will earn one continuing professional education (CPE) credit after virtually attending a town-hall style discussion. The monthly webinar will communicate the latest news and information and will better explain the topics and issues that affect the daily work of accountants and auditors, the AICPA said. Recognized and respected thought leaders will lead the live discussions. “One of my biggest privileges is supporting practicing CPAs,” Carl Mayes, AICPA & CIMA vice president of audit and accounting quality, said in a statement. “Auditors play a critical role in our society and keeping up with a constantly evolving business environment and regulatory landscape can be daunting. We’re here to help.”


PCAOB Promotes James Cappoli to General Counsel

After serving six months as acting general counsel of the PCAOB, James Cappoli was promoted to general counsel. The appointment follows the departure of then-General Counsel Kenneth Lench in July 2023. Cappoli, who was at the time deputy general counsel, became acting general counsel upon Lench’s departure. Lench joined the audit board as general counsel in February 2020 when William Duhnke was PCAOB chairman. The general counsel advises the PCAOB about all its operations and leads the Office of the General Counsel (OGC). “The Office of the General Counsel plays an essential role that touches nearly every aspect of the PCAOB’s oversight and day-to-day activities,” PCAOB Chair Erica Williams said in a statement on January 11, 2024. “The PCAOB has already benefited greatly from James’ outstanding legal experience and leadership, and we are pleased he will continue to lead OGC.” Cappoli joined the PCAOB in September 2022 from the SEC where he worked in the Office of the General Counsel for more than 14 years, most recently as assistant general counsel for enforcement matters.