Based on conversations with the accountant preparing the John Locke Foundation’s audited financial statements for 2003-04, I have to conclude that the accounting profession is, well, a bit batty. It’s not our accountant’s fault, by the way, or ours. We both have to follow generally accepted principles, I guess. But still . . .
The issue is depreciation. It seems that an asset with a life greater than one year needs to be listed and depreciated. So, how should websites be treated? Their useful lives are longer than a year, certainly, but they are intangible and do not really get physically depleted by repeated use the way tangible assets do. The profession has settled on a three-year depreciation standard. Well, that clears things up, doesn’t it?
My point is that the fundamental principles behind depreciation and amortization represent a good-faith but odd way of identifying and tracking the value of an institution’s assets. For a public policy group like the John Locke Foundation, our most valuable assets are not equipment, desks, chairs, publications, or even websites. They are people, relationships, and reputations. Hard to say that we “own” JLF employees or afffiliated scholars, but on the other hand it’s hard to say that JLF has no property claim to such assets or that it has any real value without them.
