I attended a most interesting â€śnight schoolâ€ť at the Data Warehousing Instituteâ€™s conference this week in San Diego. It was taught by Sid Adelman and dealt with the new accounting requirements that companies assign a â€śfair valueâ€ť to their data warehouses and BI environments. Read on about this controversial and confusing new accounting practice.
Did you know that you and your accountants must put a fair value upon your data warehousing environment that includes not only the software and hardware but the intangible value it brings to your company (better decisions, timely reporting, quality data, etc.)? Yes, it is true. The new FASB (Financial Accounting Standards Board) rules requiring that data warehouses show up on your balance sheet as an asset will kick in fully in 2006. At that time, it becomes â€śthe lawâ€ť to record the full value of this critical company asset just as you just record the value of your inventory, capital assets such as buildings, financial assets, and so on.
Yikes! Where do you begin to estimate (yes â€“ it is a statistical estimate at best) the asset value of BI? The key is to determine the future value of the data warehouse and be able to express that in todayâ€™s dollars. According to FASB, â€śAssets are probable future economic benefits obtained or controlled by a particular entity as a result of past transactions or eventsâ€ť (FASB Concept Statement No. 6).
Letâ€™s start with the easy stuff â€“ you know with relative accuracy the cost of the hardware and software, consulting and contracting resources costs, and employee costs (the number of hours they worked on creating the BI components times their loaded hourly rate). These are â€śhardâ€ť dollars that you spent on the construction of the data warehouse and its associated marts or applications.
But what about the other benefits of the warehouse that are not so easily valued? These include such things as the benefits garnered from its usage like lowered costs or expenses, better marketing of your customers, more productivity from analysts, reduced fraud, better quality data for decision making, etc. How do you put a fair value estimate on these?
Other considerations are the data quality improvements, meta data, data models, enhancements to the warehouse, value of integrated data, the performance and availability capabilities. Each of these increases the fair value of this asset. Note though that poor data quality is just as important in decreasing the value of the warehouse!
Note â€“ some things cannot be capitalized and must be expensed. These include maintenance costs, training, ongoing administration and support, the cost of the help desk and â€“ significantly â€“ a failed data warehouse project!
And, as if that were not a big enough headache, you or your accountants must determine the useful life of the warehouse. This is the time frame that will be used to amortization this asset. Do you amortize it over three years? Five years? Perhaps ten?
For more information on this subject, read Sid Adelmanâ€™s complete article entitled "Capitalizing the Data Warehouse".
Posted August 17, 2005 12:03 PM
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