Provides an overview of accounting for deferred taxes. The primary objective is to provide external users with a basic understanding of deferred taxes. A simple illustrative example is provided, which is followed by a discussion of several important issues likely to be encountered in the analysis of deferred taxes (e.g., deferred tax assets vs. liabilities, balance sheet classification, permanent differences, statutory vs. effective tax rate, net operating loss carry forwards, and valuation allowances). The discussion of these issues is brief and non-technical. Provides actual deferred tax information from AOL's Form 10-K, where net operating loss carry forwards result in a large deferred tax asset and the accounting for software and deferred subscriber acquisition costs generate a large differed tax liability.
Examines the valuation of an Irish airline that reported its first decline in net income in 2004 and saw a 30% stock price drop on the news. Ryanair is a low-cost, low-fare airline headquartered in Dublin, Ireland, operating over 200 routes in 20 countries. The company has directly challenged the largest airlines in Europe and has built a 20+ year track record of incredibly strong passenger growth while progressively reducing fares. It is not unusual for one-way tickets (exclusive of taxes) to sell on Ryanair's Web site for less than one euro. Having created profitable operations in the difficult airline industry, industry analysts and Ryanair itself have likened the airline to its U.S. counterpart, Southwest Airlines, and the common stock has attracted the attention of investors in Europe and abroad. Valuing Ryanair is problematic because of the general levels of uncertainty in the industry (i.e., fuel costs, labor, macroeconomic factors, etc.) and is exacerbated by the company's stated goal of actually decreasing fares each year.
Introduces a discussion of management earnings disclosure and the growing use of pro forma reporting by corporations. Highlights the background of pro forma reporting, how it has been used in the past couple of years, and what the regulators at the capital markets think about this form of earnings disclosure. Also examines two companies' use of pro forma.
The footnote disclosure for eBay, Inc. in 2000 indicates that if the company had accounted for employee stock options under the fair value method, its reported profit of $48 million would have been a loss of $91 million. The protagonist is a prospective member of the compensation committee of the board of directors, which provides a corporate governance perspective on the role of compensation in attracting, motivating, and retaining talented employees.
Employees who have been granted stock options have the right to purchase shares of their company's stock at a specified price within a specified time period. The accounting for such employee stock options has been a controversial and complex topic for decades. The debate has continued to the present time because of the high visibility of company executives who have made fortunes under their stock option programs. This note chronicles the history and debate surrounding the rules for stock options accounting and provides a simple, instructive example of accounting entries for fixed stock option grants.