A couple of accounting items for our Q1 2019 earnings
In order to help you better understand our financial results for the first quarter of 2019 that we’ll report on Monday, April 29, we are sharing information about a couple of items.
How we will account for the European Commission AdSense for Search fine in our Q1 2019 results
On March 20, 2019, the European Commission announced its decision that certain contractual provisions in agreements that Google had with AdSense for Search partners infringed European competition law and imposed a EUR 1.5 billion ($1.7 billion*) fine on Google.
As we disclosed in our 8-K, in accordance with the accounting rules we will accrue the fine this quarter, resulting in a charge of $1.7 billion in our Q1 results.
Here’s how we will account for the fine in our Q1 results:
- We will report a separate operating expense line for the $1.7 billion charge on the income statement.
- The fine is not tax deductible.
- Therefore, the charge will reduce our GAAP operating income, GAAP net income and GAAP EPS by the full amount.
*Based on the March 20, 2019 exchange rate
Change in the classification of performance fees
As described previously in our 10-Ks, we have compensation arrangements with payouts based on realized investment returns, referred to as performance fees. Performance fees have been classified as general and administrative expenses while related investment gains and losses have been classified as other income & expense, net (OI&E). Starting in Q1 2019, we are classifying performance fees with the related investment gains and losses, net in OI&E to better reflect the economics of our arrangements. Our quarterly filing for Q1 2019 will recast prior period financial information to conform with the new classification. As a reminder, in 2018 we adopted a new accounting standard that requires all gains and losses, unrealized and realized, on equity security investments to be recognized in OI&E on the income statement.
Posted by Amie Thuener, Chief Accounting Officer