Posts tagged with "accounting rule"

new-accounting-rule

There’s a New Accounting Rule and It’s Adding Trillions in Liabilities

Earlier this year, companies are required to record operating leases, such as equipment, office space, planes, and cars. It’s estimated that this new rule will pull up to $3 trillion into the spotlight, expenses that were previously often buried in footnotes rather than recorded on balance sheets.

Up to this point, companies were only mandated to record leases that led to the purchase of the asset. The Financial Accounting Standards Board has enacted this change to make it easier for investors to evaluate companies’ financial obligations.  

According to the International Accounting Standards Board, U.S. public companies are committed to $3 trillion in operating leases. Companies with the largest amount of operating leases include restaurants and retailers.

Leverage, which is measured in the ratio of debt to earnings or debt to equity, is fundamental to evaluating a company’s risk. This accounting rule change may force investors to alter the way they assess criteria to make investment decisions.

MSCI Quality index employs debt to equity as one of the major metrics in ranking companies, and if a company’s debt to equity ratio changes significantly as a result of this new accounting rule, it could get screened out of the index. In spite of that, Kevyn Dillow, accounting analyst at Moody’s Investors Service, clarifies that credit quality is not changing as a result of this new rule.

Adding another layer of complexity: some data vendors have yet to incorporate lease liabilities into a company’s total debt amount, and some don’t plan on it even in the future. This means that different platforms could ultimately run very different numbers, leading to inconsistencies in data metrics, which is a concern for many.

Flexi

Accounting rules change often, and Flexi knows you need software that keeps up. Whatever industry you work in–whether it be financial services, healthcare, insurance, or banking–Flexi can help keep you on top of the most current regulatory measures.,

Flexi’s powerful accounting software was built to simplify the complex processes that accountants face every day. Flexi understand how stressful the period close is, how complicated multi-entity books can be, and how frustrating audits are when accurate reporting is not easily available.

A laser focus on finance and accounting software has enabled the Flexi  team to scrutinize every step of the accounting process, and develop a solution designed to simplify every task. This “process-driven” approach delivers tremendous benefits to finance teams, including a faster, more accurate financial close.

Submit your information and get a demo of the Flexi suite today.

 

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New Accounting Rule

How a New Accounting Rule is Getting CFOs Upset

Starting next year, public companies will be required to report operating leases as liabilities. Under this new rule by the Financial Accounting Standard Board, companies will be required to add to their books the debt-like obligations they incur to lease real estate, office equipment, airplanes, and more.

The Wall Street Journal estimates $3.3 trillion in operating liabilities to be worked into the corporate balance sheets of public companies due to this change. While these operating leases are currently resting in the footnotes, they will be front and center in next year’s financial reports.

The change leaves CFOs questioning whether they should renegotiate lease terms, provide specialized reports to lenders, or risk having their debts called by lenders. Legal fees, bank fees, and other fees, fines, and expenses could apply, and the corporate debt-to-earnings ratios will be disrupted, affecting borrowing power.

While the new rule is intended to improve transparency for investors and lenders and bring the U.S. closer to global accounting standards, compliance will result in time and money spent to observe the new rule. This could require new accounting processes or even new accounting software, not to mention the time and expense of staff training. This is undoubtedly a blow to the bottomline for many public companies who are now scrambling to gear up for this regulatory change.

While some CFOs will be seeking to amend loan terms, others may opt to produce one set of financials for regulators and yet another set for lenders. For some, the extra time to produce two different sets of reports is the best available option when the other option could involve hefty bank and legal fees.

As accountants and finance professionals, there is no time better than the present to familiarize yourself with the regulatory change and how it will affect U.S. business to ensure that your books–or your clients’ books–are ready.

The future with Flexi

Flexi knows that compliance is imperative for your business. Flexi provides tools and products to help keep your business up to speed with compliance and regulatory demands. As the accounting rules change, let Flexi help your business succeed.

Trusted by enterprises for 25+ years, Flexi is among the most experienced accounting software providers in both the cloud and on-premise markets. Organizations of all sizes, particularly those with complex accounting requirements such as multi-entity and intercompany accounting needs, are benefiting from Flexi’s value: rich features, flexible deployment, easily customized, low maintenance, and highly rated support, all at an attractive total cost of ownership.

 

 

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