ACSOI
Encyclopedia
ACSOI (also called Adjusted CSOI) is a controversial non-GAAP
accounting metric.
The metric amortizes
marketing and acquisition costs over several accounting periods. The "Adjusted" part of the metric increases ("inflates") a company's reported net income in the most recent accounting period. The rationale behind the use of ACSOI is that marketing and subscriber acquisition expenses have value long into the future: they build a brand; therefore, they should be spread out over time. Cash spent on marketing is not expensed: it is converted into another asset ("subscriber acquisition assets, net") on a company's balance sheet
.
This presentation of net income is prohibited by the Financial Accounting Standards Board
, arbiters of GAAP (Generally Accepted Accounting Principles) in the United States. In GAAP, marketing expenses may be accrued in some situations as prepaid expenses, but only amortized in special cases. Deferred acquisition costs
are typically only allowed for amortizing the acquisition costs of customers in businesses like insurance
, where the amortization occurs over the well-defined duration of a contract. ACSOI can be a useful internal metric for businesses to determine financial performance and to make strategic management decisions, if they believe their subscriber acquisition costs are an up-front cash outlay that truly builds long-term customer assets commensurate with that outlay. A main argument for not using this metric in GAAP accounting is that there is a key difference between subscribers and customers: customers make purchases and generate revenue
for the business; it may be faulty to assume that all subscriber acquisition costs can be amortized as assets if only an unknown portion of the acquired subscribers will actually convert to customers.
The use of ACSOI came under scrutiny in August 2011, when it was revealed the company Groupon
used the metric to present a net gain in operating income in their IPO filing. Without the ACSOI metric, Groupon would have stated a net loss.
Gaap
In demonology, Gaap is a mighty Prince and Great President of Hell, commanding sixty-six legions of demons. He is, according to The Lesser Key of Solomon, the king and prince of the southern region of Hell and Earth, and according to the Pseudomonarchia Daemonum the king of the western region and...
accounting metric.
The metric amortizes
Amortization
Amortization is the process of decreasing, or accounting for, an amount over a period. The word comes from Middle English amortisen to kill, alienate in mortmain, from Anglo-French amorteser, alteration of amortir, from Vulgar Latin admortire to kill, from Latin ad- + mort-, mors death.When used...
marketing and acquisition costs over several accounting periods. The "Adjusted" part of the metric increases ("inflates") a company's reported net income in the most recent accounting period. The rationale behind the use of ACSOI is that marketing and subscriber acquisition expenses have value long into the future: they build a brand; therefore, they should be spread out over time. Cash spent on marketing is not expensed: it is converted into another asset ("subscriber acquisition assets, net") on a company's balance sheet
Balance sheet
In financial accounting, a balance sheet or statement of financial position is a summary of the financial balances of a sole proprietorship, a business partnership or a company. Assets, liabilities and ownership equity are listed as of a specific date, such as the end of its financial year. A...
.
This presentation of net income is prohibited by the Financial Accounting Standards Board
Financial Accounting Standards Board
The Financial Accounting Standards Board is a private, not-for-profit organization whose primary purpose is to develop generally accepted accounting principles within the United States in the public's interest...
, arbiters of GAAP (Generally Accepted Accounting Principles) in the United States. In GAAP, marketing expenses may be accrued in some situations as prepaid expenses, but only amortized in special cases. Deferred acquisition costs
Deferred Acquisition Costs
Deferred Acquisition Costs is a term commonly used in the insurance business. It describes the practice of deferring the cost of acquiring a new customer over the duration of the insurance contract...
are typically only allowed for amortizing the acquisition costs of customers in businesses like insurance
Insurance
In law and economics, insurance is a form of risk management primarily used to hedge against the risk of a contingent, uncertain loss. Insurance is defined as the equitable transfer of the risk of a loss, from one entity to another, in exchange for payment. An insurer is a company selling the...
, where the amortization occurs over the well-defined duration of a contract. ACSOI can be a useful internal metric for businesses to determine financial performance and to make strategic management decisions, if they believe their subscriber acquisition costs are an up-front cash outlay that truly builds long-term customer assets commensurate with that outlay. A main argument for not using this metric in GAAP accounting is that there is a key difference between subscribers and customers: customers make purchases and generate revenue
Revenue
In business, revenue is income that a company receives from its normal business activities, usually from the sale of goods and services to customers. In many countries, such as the United Kingdom, revenue is referred to as turnover....
for the business; it may be faulty to assume that all subscriber acquisition costs can be amortized as assets if only an unknown portion of the acquired subscribers will actually convert to customers.
The use of ACSOI came under scrutiny in August 2011, when it was revealed the company Groupon
Groupon
Groupon is a deal-of-the-day website that features discounted gift certificates usable at local or national companies. Groupon was launched in November 2008, the first market for Groupon was Chicago, followed soon thereafter by Boston, New York City, and Toronto...
used the metric to present a net gain in operating income in their IPO filing. Without the ACSOI metric, Groupon would have stated a net loss.