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By Amanda Iacone, Reporter at Bloomberg Tax | Originally posted on: news.bloombergtax.com

• New lease accounting rules short-change comparability between international and U.S. companies
• Data vendors, companies adjusting the universal metric for lease accounting

The corporate earnings measurement known as EBITDA stormed into popular use during the leverage buyout boom of the 1980s, as investors looked for a measure better than net income to figure out how much cash a company generated, and ultimately whether it could handle its debt.

In the decades since, it evolved into a tool for evaluating everything from credit strength to equity multiples even as it was derided as “earnings before expenses” and came under scrutiny at the Securities and Exchange Commission.

Now, sweeping changes to lease accounting rules instituted this year have delivered a blow to the relevance of earnings before taxes, depreciation and amortization as the metric has been used traditionally. Differences in methods used to calculate it already limited its usefulness, said Robert Schiffman, a Bloomberg Intelligence credit research analyst, “and these accounting issues just make it a little bit more imperfect.”

The new rules for lease accounting required companies to report all long-term leases on their balance sheets for the first time.

The trillions of dollars’ worth of operating leases for airplanes, retail space, and office equipment were long estimated by investors and ratings agencies. But the accounting change triggered a few surprises for investors because, while instituted as a step toward balance sheet honesty, it also impacted earnings for such companies as Ryder System Inc.,… Read More

By Michael Cohn of AccountingToday.com | Originally posted on: www.accountingtoday.com

Moody’s Investors Service is objecting to a proposal from the Financial Accounting Standards Board to delay the effective dates of its leases, hedging and credit loss standards for private companies and small public companies, saying it would reduce the comparability of financial statements of public and private companies for investor and delay IPOs and mergers.

At a meeting last month, FASB voted to defer the effective dates of four standards for private companies, nonprofits and smaller reporting companies: leases, hedging, credit losses (also known as CECL for the current expected credit loss model it uses) and long-duration insurance contracts such as life insurance (see FASB to propose delays in major accounting standards). FASB subsequently unveiled the formal proposals as proposed accounting standards updates this month (see FASB issues proposal to delay new accounting standards and FASB proposes to delay insurance accounting standard). FASB typically gives private companies an extra year to implement major new accounting standards after the effective date for public companies.

The proposals would give private companies and nonprofits at least two years beyond the effective date for larger public companies, as well as extend the effective date for smaller reporting companies (those with a public float of less than $250 million; or annual revenue of less than $100 million and either no public float or a public float of less than $700 million). FASB is proposing a new philosophy of staggering the effective dates for major standards between larger public companies and all other entities, including private companies, smaller public companies, not-for-profits and employee benefit plans.… Read More

By Michael Cohn, Editor-in-chief of AccountingToday.com | Originally posted on: www.accountingtoday.com

The Governmental Accounting Standards Board has released questions and answers about the recent standard on accounting and financial reporting for leases by state and local governments.

Implementation Guide No. 2019-3, Leases, addresses a variety of questions about how to apply the provisions of GASB Statement No. 87, Leases, including scope and applicability; determining the term of a lease; determining if a lease qualifies for the short-term lease exception; and recognition, measurement and disclosure by lessees.

Other topics include recognition, measurement and disclosure by lessors; accounting for contracts with multiple components and contract combinations; accounting for modifications and terminations of leases, along with sale-leasebacks, lease-leasebacks and intra-entity leases.

The guidance is applicable to all state and local governments that follow U.S. GAAP when preparing their financial statements.

The guide is available for download at no charge. Printed copies will be available through the GASB Store in the weeks ahead.

By Michael Cohn of AccountingToday.com | Originally posted on: www.accountingtoday.com

The Financial Accounting Standards Board issued a proposed accounting standards update that would grant private companies, not-for-profit organizations, and certain small public companies extra time to implement the new standards on current expected credit losses (also known as CECL), leases and hedging.

The proposal comes after FASB voted earlier this month to give private companies, nonprofits and smaller reporting companies an additional year to implement the standards (see FASB to propose delays in major accounting standards). Private companies and nonprofits normally get an extra year after public companies on the effective date for implementing major new standards, but the proposal would give them an extra two years.

In the proposed update, FASB outlines a new philosophy for the effective dates for major standards between larger public companies and all other entities, including private companies, smaller public companies, not-for-profits, and employee benefit plans. Under this philosophy, a major standard would first take effect for larger public companies, and then, for all other entities, FASB would consider requiring an effective date staggered at least two years later. Generally, it’s expected that early application would continue to be permitted for all entities.

The move comes in response to complaints from many companies and accountants about the dfficulties of implementing the new standards, especially so soon after implementation of the revenue recognition standard.

“Based on what we’ve learned from our stakeholders, including the Private Company Council and the Small Business Advisory Committee, private companies, not-for-profit organizations, and some small public companies would benefit from additional time to apply major standards,” said FASB Chairman Russell Golden in a statement.… Read More