FASB is analyzing data center accounting trends

The Financial Accounting Standards Board is taking a closer look at two issues that’ve been in the headlines a lot recently: data centers and private credit. (And who says accounting is just for the nerds?)

FASB, the body charged with setting GAAP standards, announced on April 6 that its chair, Rich Jones, added a research project “to monitor current trends and emerging issues and solicit stakeholder feedback” on topics including “data infrastructure investments and non-traditional lending.” In English: FASB is monitoring accounting issues around data center projects and private credit.

This is an initial research phase, and staffers will eventually present information to the FASB board to “determine whether to add items to the FASB technical agenda,” according to a news release. The release didn’t give a timeline for when that may happen.

More data center data: As CFO Dive recently reported, FASB’s announcement “comes as accounting treatment related to the way big tech firms are financing data center projects is drawing scrutiny.”

Tech giants announced massive capex plans in recent months, showcasing the sheer size of the AI arms race.

Krishna Chintalapalli, portfolio manager and senior analyst at Parnassus Investments, told the Wall Street Journal earlier this year that while tech companies are starting to disclose information, “it’s still an evolving situation.” Some investors are comfortable enough with the companies’ track records, while others want more info, he added.

Coinciding with the data-center boom were some “notable changes in accounting,” Oscar Mackereth, investment associate and partner at Cerno Capital, wrote in a report back in October. Namely, the tech hyperscalers “extended the useful lives of their servers and networking equipment,” he wrote.

“To date, the hyperscalers [Amazon, Microsoft, Alphabet, and Meta] have benefited from front-loaded profits whereby capitalised GPUs [graphic processing units] can be deployed to generate training and inference revenues before significant depreciation expenses have to be recorded,” Mackereth stated. “As these companies embark on a historical investment cycle, whilst simultaneously extending the depreciation period, the hurdle rate required to achieve positive economic value is mechanically lowered. This benefits these companies by smoothing earnings and protecting operating margins.”