Did Twitter make a profit last quarter?
That seems like a simple enough question, one that public companies are required to answer in very specific fashion. Yet a quick perusal of news coverage of the July 29 earnings announcement shows two drastically different answers: Twitter either had a $15 million profit, or a $145 million loss.
The difference, of course, is that one of the numbers was compiled according to “Generally Accepted Accounting Principles,” or GAAP, as required by law, while the other is a “non-GAAP” measure that the company offers voluntarily and which doesn’t include stock-based compensation, a very large expense.
There’s a decades-old argument over whether stock options, restricted stock and other forms of equity payment should be treated as an expense; one academic paper calls it “one of the most controversial topics ever addressed by accounting standards setters.”