>Last I checked, software was 3 year property?
Here's what Greenspan said the other day:
<quote> The key definitional question that must be confronted is, What is a capital outlay? Conversely, What is an expense that, by definition, is consumed in the process of production and deemed an intermediate product? This issue is most immediately evident in accounting for software outlays, but it is rapidly expanding to a much broader range of activities.
Software that is embedded in capital equipment, and some that is stand-alone, is currently being capitalized and consequently amortized against current and future earnings. But a substantial portion of software spending is expensed, even though the equity prices of the purchasing companies are clearly valuing the software outlays as contributing to earnings over their useful economic lives--the relevant criterion for capitalizing an asset.
There has always been a fuzzy dividing line between what is expensed and what is capitalized. This has historically bedeviled the accounting for research and development, for example. But the major technological advances of recent years have exposed a wide swath of rapidly growing outlays that, arguably, should be capitalized so that the returns they produce would be more accurately reflected as earnings over time. Indeed, there is even an argument for capitalizing new ideas, such as different ways of organizing production, that enhance the value of a firm without any associated outlays. Some analysts judge the size of undercapitalized outlays as quite large. [footnote: For example, Erik Brynjolfsson and Shinkyu Yang, "The Intangible Costs and Benefits of Computer Investments: Evidence from the Financial Markets," MIT Sloan School, mimeo, April 1999.]
The important point, however, is that decisions about which items to expense will have important consequences for reported earnings. In general, if the trend of expensed items that should be capitalized is rising faster than reported earnings, switching to capitalizing these items will almost always accelerate the growth in earnings. The reverse, of course, is also true. </quote>
If software were depreciated rather than expensed, reported earnings would be higher.
He then brought up some things that lead to overstatement of profits - e.g. stock options that aren't charged against earnings - but said on balance profits were probably understated, meaning the stock market's exuberance isn't irrational after all.
Doug