VIE’s, Cloud Computing, And The Individual
First, here is an overview of cloud computing…
The future is now! Cloud computing is setting the stage for the virtual enterprise. The days of outsourcing labor-intensive jobs have subsided giving rise to virtual computing. Net neutrality issue solved, correct? Not so fast.
With more people expected to gobble up bandwidth at an increasing rate over the next decade, device ownership will explode into the billions of users creating a labyrinth of problems. How do you store this much data without the system crashing? Basically, the amount of viewership one receives on the information highway will be directly related to the accessibility of the data. It sounds like a self-fulfilling prophecy, which it is. However, content is what drives the competitive forces of the Internet now. It is simply a matter of deciding how content will be dispersed without causing glitches along the way.
The Internet is gentrifying, however, this is the normal process for any new technology. There is a growth pattern in which at the beginning there is exponentially upward curve. Then toward the top of the bell the rate of increase declines, however, the numbers (customers in this instance) are relatively larger than before. Ask any economist and they will tell you. This is when business minds must adapt to the changing environment or miss an opportunity.
The opportunity game is being played out in the rules governing so-called “off-balance sheet” entities. If you need a refresher on how the notion of Variable Interest Entities came into being, it occurred in the wake of the Enron debacle in which non-consolidated entities would have adversely affected a shareholder’s decision to purchase Enron stock had they been disclosed. The Sarbanes-Oxley Act of 2002 put pressure to tighten the reporting rules for VIE’s, and the Financial Accounting Standards Board issued their on guidelines for VIE’s in Interpretation No. 46.
Off-balance sheet companies are often used to conduct research and experimentation and for leasing activities, and the rules governing VIE’s left out individual investors in such entities. Theoretically, if individuals wish to invest in the technologies of the future that will all but guarantee the positioning of a company in the Internet of the near future, then such activities will be undisclosed to those investing in the underlying company.
Often financial professionals look at rulings and think of the practical application of them in terms of reporting standards being limiting. In the case of cloud computing and VIE’s, individuals are literally being empowered in powerful decision-making capacities. But wasn’t the foundation of accounting supposed to be comprised of the notion of fairness as well as equity? And hasn’t history proven again and again that the individual is just as capable of producing more in terms of efficiency and creativity than a relatively slow-moving corporation?
Since cloud computing is also more energy efficient in terms of adjusting usage to the individual, it also presents an opportunity for various energy-related tax credits given the lighting and cooling for a more efficient data center. For more information on the energy tax credit aspect of cloud computing go here.
