Assurance Principal Jennifer Goodman presented "What Was the FASB Thinking?," a discussion and examples of unusual accounting rules, at the 2013 Decosimo Accounting Forum hosted by the University of North Alabama on July 19.
Contingent liabilities, commitments and provisions in oil industryHamdy Rashed
What is the different between contingency, commitment and provision, how disclose the Joint venture minimum exploration payment or obligation in the financial statements
Paying for Litigation- Hourly, Contingency, Third Party Financing & More (Ser...Financial Poise
As the cost and duration of litigation continue to increase, clients have begun demanding fee arrangements that deliver maximum value and best mitigate risk. This webinar explores the mechanics and pros and cons of various fee arrangements, from hourly to contingent to mixtures of the two. We also discuss the increasingly popular option of third-party litigation finance.
To view the accompanying webinar, go to: https://www.financialpoise.com/financial-poise-webinars/paying-for-litigation-hourly-contingency-third-party-financing-more-2021/
Contingent liabilities, commitments and provisions in oil industryHamdy Rashed
What is the different between contingency, commitment and provision, how disclose the Joint venture minimum exploration payment or obligation in the financial statements
Paying for Litigation- Hourly, Contingency, Third Party Financing & More (Ser...Financial Poise
As the cost and duration of litigation continue to increase, clients have begun demanding fee arrangements that deliver maximum value and best mitigate risk. This webinar explores the mechanics and pros and cons of various fee arrangements, from hourly to contingent to mixtures of the two. We also discuss the increasingly popular option of third-party litigation finance.
To view the accompanying webinar, go to: https://www.financialpoise.com/financial-poise-webinars/paying-for-litigation-hourly-contingency-third-party-financing-more-2021/
On March 20, 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2014-07 Consolidations (Topic 810): Applying Variable Interest Entities Guidance to Common Control Leasing Arrangements (hereafter ASU 2014-07 or the standard). This standard is the third accounting alternative proposed by the Private Company Council (PCC) and endorsed by the FASB. It is an accounting alternative that permits a private company reporting entity to elect to not apply the variable interest entity (VIE) guidance to certain leasing arrangements. If elected, the guidance of this standard must be applied to all qualifying lease arrangements.
The adoption of ASU 2014-07 may result in the deconsolidation of commonly controlled lessor entities that were previously consolidated under the VIE guidance, the removal of disclosures prescribed by the VIE guidance for consolidated and certain non-consolidated commonly controlled lessor entities, or the reduction in the documentation and procedures necessary to evaluate these types of entities under the VIE guidance.
ESOPs 101 (Series: Cross-Training for Business Lawyers 2020) Financial Poise
Employee stock ownership plans (ESOPs) are plans regulated by the Employee Retirement Income Security Act (ERISA) and designed to allow employees to invest in the stock of their employer. The shareholder participants/employees as well as the sponsoring company generally receive tax benefits through the use of the plan. And while they are generally touted as designed to promote employees’ interest and efforts in maximizing the value of the company for the benefit of both employer and employees, ESOPs are often used as a method of corporate finance by the sponsoring company.
To listen to this webinar on-demand, go to: https://www.financialpoise.com/financial-poise-webinars/esops-101-2020/
The Intersection of Bankruptcy and... Labor/Employment Law (Series: Bankruptc...Financial Poise
Even before a company files for bankruptcy protection, multiple employment and labor issues can arise. This webinar addresses the ramifications of the failure of a debtor to comply with the Worker Adjustment and Retraining Notification Act (WARN), which requires employers to provide written notice in advance of covered plant closings and mass layoffs under certain conditions and may subject the debtor to liability. It also examines employee wage and claim issues that are often triggered by the filing for bankruptcy protection, as well as the special treatment provided by the Bankruptcy Code for collective bargaining agreements and retiree health care benefits, which makes modification or rejection of such agreements more difficult during the bankruptcy proceeding.
To listen to this webinar on-demand, go to: https://www.financialpoise.com/financial-poise-webinars/bankruptcy-and-labor-employment-law-2020/
Dodd-Frank Wall Street Reform and Consumer Protection Act, Executive Compensa...Edward Hauder
This presentation looks at the executive compensation provisions (Sections 951-957) and corporate governance provisions (Sections 971-972) of the Dodd-Frank Wall Street Reform and Consumer Protection Act.
Defined benefit pension plans represent a growing financial risk for many employers. To reduce the risk and volatility inherent in unfunded pension obligations, employers are increasingly turning to de-risking strategies. Each de-risking strategy involves various technical issues, and employers need to stay up to date on the latest legal developments in this rapidly changing area.
On March 20, 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2014-07 Consolidations (Topic 810): Applying Variable Interest Entities Guidance to Common Control Leasing Arrangements (hereafter ASU 2014-07 or the standard). This standard is the third accounting alternative proposed by the Private Company Council (PCC) and endorsed by the FASB. It is an accounting alternative that permits a private company reporting entity to elect to not apply the variable interest entity (VIE) guidance to certain leasing arrangements. If elected, the guidance of this standard must be applied to all qualifying lease arrangements.
The adoption of ASU 2014-07 may result in the deconsolidation of commonly controlled lessor entities that were previously consolidated under the VIE guidance, the removal of disclosures prescribed by the VIE guidance for consolidated and certain non-consolidated commonly controlled lessor entities, or the reduction in the documentation and procedures necessary to evaluate these types of entities under the VIE guidance.
ESOPs 101 (Series: Cross-Training for Business Lawyers 2020) Financial Poise
Employee stock ownership plans (ESOPs) are plans regulated by the Employee Retirement Income Security Act (ERISA) and designed to allow employees to invest in the stock of their employer. The shareholder participants/employees as well as the sponsoring company generally receive tax benefits through the use of the plan. And while they are generally touted as designed to promote employees’ interest and efforts in maximizing the value of the company for the benefit of both employer and employees, ESOPs are often used as a method of corporate finance by the sponsoring company.
To listen to this webinar on-demand, go to: https://www.financialpoise.com/financial-poise-webinars/esops-101-2020/
The Intersection of Bankruptcy and... Labor/Employment Law (Series: Bankruptc...Financial Poise
Even before a company files for bankruptcy protection, multiple employment and labor issues can arise. This webinar addresses the ramifications of the failure of a debtor to comply with the Worker Adjustment and Retraining Notification Act (WARN), which requires employers to provide written notice in advance of covered plant closings and mass layoffs under certain conditions and may subject the debtor to liability. It also examines employee wage and claim issues that are often triggered by the filing for bankruptcy protection, as well as the special treatment provided by the Bankruptcy Code for collective bargaining agreements and retiree health care benefits, which makes modification or rejection of such agreements more difficult during the bankruptcy proceeding.
To listen to this webinar on-demand, go to: https://www.financialpoise.com/financial-poise-webinars/bankruptcy-and-labor-employment-law-2020/
Dodd-Frank Wall Street Reform and Consumer Protection Act, Executive Compensa...Edward Hauder
This presentation looks at the executive compensation provisions (Sections 951-957) and corporate governance provisions (Sections 971-972) of the Dodd-Frank Wall Street Reform and Consumer Protection Act.
Defined benefit pension plans represent a growing financial risk for many employers. To reduce the risk and volatility inherent in unfunded pension obligations, employers are increasingly turning to de-risking strategies. Each de-risking strategy involves various technical issues, and employers need to stay up to date on the latest legal developments in this rapidly changing area.
Social in Seattle: How Children's Hospital Boston uses social media to commun...Matt Cyr
In this presentation, given at the Ragan Communications Conference in Seattle from April13-15, Matt Cyr talks about how Children's Hospital Boston uses Facebook, blogs, Twitter and YouTube to connect with its patients, families and physicians.
Ecorub AB Annual Report 2008 - Net loss for the year 1,4 million Swedish kronaSherman Klump
Ecorub AB Annual Report 2008 - Net loss for the year 2008 is 1,4 million Swedish krona. The fiscal year 2007 Ecorub AB had revenue (turnover) of 8,1 million Swedish krona.
Key Bankruptcy Considerations Heading into a RecessionQuarles & Brady
As the impact of the COVID-19 pandemic continues to evolve, US businesses are already feeling the impact of a potential economic downturn. Presenters will discuss key considerations that may present themselves in the event of a recession, including modification and forbearance agreements, amendment/default scenarios, risks regarding "slow pay" and termination of key contracts, and priority rights of suppliers in bankruptcy, as well as implications of the Small Business Bankruptcy Act for potential debtors.
Intermediate Accounting Volume 2 Canadian 11th Edition Kieso Test BankBentonner
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Surety Industry Overview: State of the Industry by Cissie ScogginDon Grauel
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Creditor\'s Rights and Bankruptcy Issues in Real Estate Lawterigrasmussen
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Forensics and Fraud: Red Flags and War StoriesDecosimoCPAs
Principal Mike Costello, CPA•ABV•CFF, ASA, CFE, Director of Litigation Support Sharon P. Hamrick, CPA•CFF, CFE and Senior Manager Pamela S. Mantone, CPA•CFF, CFE, FCPA, CITP, CGMA co-presented the topic "Forensics and Fraud: Red Flags and War Stories" at the 2013 TSCPA FSV Conference, during which they shared from their experiences the details of various fraud schemes and methods used to detect and investigate them. - See more at: http://decosimo.com/www/announcements/540.8136/forensic-accounting-fraud-specialists-share-expertise-tscpa#sthash.eEdR6hfE.dpuf
Principal in Charge of Assurance Department at Decosimo Tom Eiseman presented "Back to the Future Part I & II - Plans for Private Company Reporting" at the 2013 Decosimo Accounting Forum hosted by the University of North Alabama on July 19.
Decosimo Assurance Manager Derek Daniel presented "GAAP Accounting Update" at the 2013 Decosimo Accounting Forum hosted by the University of North Alabama on July 19.
Unveiling the Secrets How Does Generative AI Work.pdfSam H
At its core, generative artificial intelligence relies on the concept of generative models, which serve as engines that churn out entirely new data resembling their training data. It is like a sculptor who has studied so many forms found in nature and then uses this knowledge to create sculptures from his imagination that have never been seen before anywhere else. If taken to cyberspace, gans work almost the same way.
Enterprise Excellence is Inclusive Excellence.pdfKaiNexus
Enterprise excellence and inclusive excellence are closely linked, and real-world challenges have shown that both are essential to the success of any organization. To achieve enterprise excellence, organizations must focus on improving their operations and processes while creating an inclusive environment that engages everyone. In this interactive session, the facilitator will highlight commonly established business practices and how they limit our ability to engage everyone every day. More importantly, though, participants will likely gain increased awareness of what we can do differently to maximize enterprise excellence through deliberate inclusion.
What is Enterprise Excellence?
Enterprise Excellence is a holistic approach that's aimed at achieving world-class performance across all aspects of the organization.
What might I learn?
A way to engage all in creating Inclusive Excellence. Lessons from the US military and their parallels to the story of Harry Potter. How belt systems and CI teams can destroy inclusive practices. How leadership language invites people to the party. There are three things leaders can do to engage everyone every day: maximizing psychological safety to create environments where folks learn, contribute, and challenge the status quo.
Who might benefit? Anyone and everyone leading folks from the shop floor to top floor.
Dr. William Harvey is a seasoned Operations Leader with extensive experience in chemical processing, manufacturing, and operations management. At Michelman, he currently oversees multiple sites, leading teams in strategic planning and coaching/practicing continuous improvement. William is set to start his eighth year of teaching at the University of Cincinnati where he teaches marketing, finance, and management. William holds various certifications in change management, quality, leadership, operational excellence, team building, and DiSC, among others.
Putting the SPARK into Virtual Training.pptxCynthia Clay
This 60-minute webinar, sponsored by Adobe, was delivered for the Training Mag Network. It explored the five elements of SPARK: Storytelling, Purpose, Action, Relationships, and Kudos. Knowing how to tell a well-structured story is key to building long-term memory. Stating a clear purpose that doesn't take away from the discovery learning process is critical. Ensuring that people move from theory to practical application is imperative. Creating strong social learning is the key to commitment and engagement. Validating and affirming participants' comments is the way to create a positive learning environment.
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Looking for professional printing services in Jaipur? Navpack n Print offers high-quality and affordable stationery printing for all your business needs. Stand out with custom stationery designs and fast turnaround times. Contact us today for a quote!
Attending a job Interview for B1 and B2 Englsih learnersErika906060
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Discover the innovative and creative projects that highlight my journey throu...dylandmeas
Discover the innovative and creative projects that highlight my journey through Full Sail University. Below, you’ll find a collection of my work showcasing my skills and expertise in digital marketing, event planning, and media production.
The world of search engine optimization (SEO) is buzzing with discussions after Google confirmed that around 2,500 leaked internal documents related to its Search feature are indeed authentic. The revelation has sparked significant concerns within the SEO community. The leaked documents were initially reported by SEO experts Rand Fishkin and Mike King, igniting widespread analysis and discourse. For More Info:- https://news.arihantwebtech.com/search-disrupted-googles-leaked-documents-rock-the-seo-world/
[Note: This is a partial preview. To download this presentation, visit:
https://www.oeconsulting.com.sg/training-presentations]
Sustainability has become an increasingly critical topic as the world recognizes the need to protect our planet and its resources for future generations. Sustainability means meeting our current needs without compromising the ability of future generations to meet theirs. It involves long-term planning and consideration of the consequences of our actions. The goal is to create strategies that ensure the long-term viability of People, Planet, and Profit.
Leading companies such as Nike, Toyota, and Siemens are prioritizing sustainable innovation in their business models, setting an example for others to follow. In this Sustainability training presentation, you will learn key concepts, principles, and practices of sustainability applicable across industries. This training aims to create awareness and educate employees, senior executives, consultants, and other key stakeholders, including investors, policymakers, and supply chain partners, on the importance and implementation of sustainability.
LEARNING OBJECTIVES
1. Develop a comprehensive understanding of the fundamental principles and concepts that form the foundation of sustainability within corporate environments.
2. Explore the sustainability implementation model, focusing on effective measures and reporting strategies to track and communicate sustainability efforts.
3. Identify and define best practices and critical success factors essential for achieving sustainability goals within organizations.
CONTENTS
1. Introduction and Key Concepts of Sustainability
2. Principles and Practices of Sustainability
3. Measures and Reporting in Sustainability
4. Sustainability Implementation & Best Practices
To download the complete presentation, visit: https://www.oeconsulting.com.sg/training-presentations
Memorandum Of Association Constitution of Company.pptseri bangash
www.seribangash.com
A Memorandum of Association (MOA) is a legal document that outlines the fundamental principles and objectives upon which a company operates. It serves as the company's charter or constitution and defines the scope of its activities. Here's a detailed note on the MOA:
Contents of Memorandum of Association:
Name Clause: This clause states the name of the company, which should end with words like "Limited" or "Ltd." for a public limited company and "Private Limited" or "Pvt. Ltd." for a private limited company.
https://seribangash.com/article-of-association-is-legal-doc-of-company/
Registered Office Clause: It specifies the location where the company's registered office is situated. This office is where all official communications and notices are sent.
Objective Clause: This clause delineates the main objectives for which the company is formed. It's important to define these objectives clearly, as the company cannot undertake activities beyond those mentioned in this clause.
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Liability Clause: It outlines the extent of liability of the company's members. In the case of companies limited by shares, the liability of members is limited to the amount unpaid on their shares. For companies limited by guarantee, members' liability is limited to the amount they undertake to contribute if the company is wound up.
https://seribangash.com/promotors-is-person-conceived-formation-company/
Capital Clause: This clause specifies the authorized capital of the company, i.e., the maximum amount of share capital the company is authorized to issue. It also mentions the division of this capital into shares and their respective nominal value.
Association Clause: It simply states that the subscribers wish to form a company and agree to become members of it, in accordance with the terms of the MOA.
Importance of Memorandum of Association:
Legal Requirement: The MOA is a legal requirement for the formation of a company. It must be filed with the Registrar of Companies during the incorporation process.
Constitutional Document: It serves as the company's constitutional document, defining its scope, powers, and limitations.
Protection of Members: It protects the interests of the company's members by clearly defining the objectives and limiting their liability.
External Communication: It provides clarity to external parties, such as investors, creditors, and regulatory authorities, regarding the company's objectives and powers.
https://seribangash.com/difference-public-and-private-company-law/
Binding Authority: The company and its members are bound by the provisions of the MOA. Any action taken beyond its scope may be considered ultra vires (beyond the powers) of the company and therefore void.
Amendment of MOA:
While the MOA lays down the company's fundamental principles, it is not entirely immutable. It can be amended, but only under specific circumstances and in compliance with legal procedures. Amendments typically require shareholder
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What are the main advantages of using HR recruiter services.pdfHumanResourceDimensi1
HR recruiter services offer top talents to companies according to their specific needs. They handle all recruitment tasks from job posting to onboarding and help companies concentrate on their business growth. With their expertise and years of experience, they streamline the hiring process and save time and resources for the company.
Accpac to QuickBooks Conversion Navigating the Transition with Online Account...PaulBryant58
This article provides a comprehensive guide on how to
effectively manage the convert Accpac to QuickBooks , with a particular focus on utilizing online accounting services to streamline the process.
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Improving profitability for small businessBen Wann
In this comprehensive presentation, we will explore strategies and practical tips for enhancing profitability in small businesses. Tailored to meet the unique challenges faced by small enterprises, this session covers various aspects that directly impact the bottom line. Attendees will learn how to optimize operational efficiency, manage expenses, and increase revenue through innovative marketing and customer engagement techniques.
RMD24 | Debunking the non-endemic revenue myth Marvin Vacquier Droop | First ...BBPMedia1
Marvin neemt je in deze presentatie mee in de voordelen van non-endemic advertising op retail media netwerken. Hij brengt ook de uitdagingen in beeld die de markt op dit moment heeft op het gebied van retail media voor niet-leveranciers.
Retail media wordt gezien als het nieuwe advertising-medium en ook mediabureaus richten massaal retail media-afdelingen op. Merken die niet in de betreffende winkel liggen staan ook nog niet in de rij om op de retail media netwerken te adverteren. Marvin belicht de uitdagingen die er zijn om echt aansluiting te vinden op die markt van non-endemic advertising.
5 Things You Need To Know Before Hiring a Videographer
What Was the FASB Thinking?
1. A Global Reach with a Local Perspective
www.decosimo.com
UNIVERSITY OF NORTH ALABAMA
2013 ACCOUNTING SEMINAR
WHAT WAS THE FASB THINKING?
JENNIFER GOODMAN | July 19, 2013
2. Examples of unusual accounting rules
Common sense might not prevail!
The Rule with “The Kicker” – An Example – Discuss
What was the FASB thinking?
Don’t believe me, I wouldn’t either
Business card with # of unusual accounting rule and I
will email standard
OVERVIEW
3. Accrue cost in connection with exit or disposal of
operating lease or other contract
Recognize cost to officially terminate contact before
end of term as a liability at fair value upon termination
Recognize continued cost without economic benefit at
cease use date as a liability at fair value
#1 Contract Termination Costs – The Rules
4. Measuring fair value of operating lease
FV is based on the remaining lease rentals reduced
by actual or estimated sublease rentals
“The Kicker”: Sublease rental income included in the
FV determination even if the entity does not intend to
enter into a sublease
#1 Contract Termination Costs – The Rules
5. Operating lease rentals of $100,000 per year for 10
years
After six years, the entity commits to an exit plan
Remaining lease rentals will be $400,000
Market rentals for similar property, sublease $75,000
per year
The entity decides not to sublease the facility (or
otherwise terminate the lease) at the cease use date
#1 Contract Termination Costs – Example
6. Expected net cash flows of $100,000 ($100,000
outflow for 4 years less $75,000 inflow for 4 years)
Discount using a credit-adjusted risk-free rate of 8%
The fair value is $89,000 using an expected present
value technique
Explain this to the board of directors!
Actual cash outflow over 4 years $400,000
Recorded liability $89,000
#1 Contract Termination Costs – Example
7. Entity receives economic benefit not to sublease.
The entity will recognize the impact of deciding not
to sublease the property over the period the property
is not subleased.
#1 What was FASB thinking?
8. Other costs associated with exit or disposal should be
recognized at fair value in the period the liability is
incurred
Liabilities - probable future sacrifices of economic benefits
arising from present obligations to transfer assets or
provide services in the future as a result of past
transactions or events
Generally corresponds to the period in which the goods or
services associated with the activity are received
“The Kicker”: Commitment to an exit or disposal plan by
management does not, by itself, result in the incurrence
of a liability
# 2 General Exit or Disposal Costs–The Rule
9. Board approves a plan on 12/1/12 to close Line 5; line 5
moved to line 2 April 2013
Management prepares an estimate of cost that will be
incurred with includes:
$250k be paid in 2013 to engineering consultants
$250k internal wages to shut line down and move to Line 1
$1M relocation cost to be paid to third party to move
usable equipment to Line 1 and set-up
$2M impairment of unusable equipment
Exit cost accrual at 12/31/12 = $0, Impairment of assets held
for sale $2M
# 2 General Exit or Disposal Cost - Example
10. The Board decided to address the accounting and
reporting for costs associated with exit or disposal
activities because entities increasingly are engaging
in exit and disposal activities and certain costs
associated with those activities were recognized as
liabilities at a plan (commitment) date that did not
meet the definition of a liability.
#2 What was FASB thinking?
11. If a period of time is required in order to construct or
carry out other activities necessary to bring an asset
to usable condition, interest cost incurred during
that period shall be capitalized as a part of the
historical cost of that asset.
“The Kicker”: Interest cost to be capitalized includes
interest on debt that is not related to the project.
#3 Capitalizing Interest – The Rules
12. Two methods:
An overall borrowing rate shall be used based on
rates applicable to borrowings outstanding during the
period
However, if a loan is obtained specifically to fund an
entire project, it is usually appropriate to use the
interest rate from that loan
This is true even if the rate on the specific construction debt
is lower than interest rates on other debt
Don’t capitalize more interest than actually incurred
#3 Capitalized Interest – The Rules
13. Qualifying assets $1M times 12.3% = Capitalized Interest $123,000
Construction loan 12% 750,000
Unsecured bank note 16% 150,000
Capitalized leases 9% 400,000
Equity 500,000
Rate Calculation:
Specific debt 750,000 75% 12%*75%=9%
Unsecured bank note 150,000 15% 16%*15%=2.4%
Capitalized leases 100,000 10% 9%*10%=.9%
Total 1,000,000 100% 12.3%
#3 Capitalized Interest - Example
14. Acquisition cost should reflect the total investment in
the asset AND should charge a cost that relates to
the acquisition to future periods where revenues are
generated.
#3 What was the FASB thinking?
15. Before ASU 2010-24, health care entities used the
following methods to present malpractice claims or
similar liabilities and related insurance recoveries:
(1) Netted insurance recoveries with the estimated accrual
for related claims (allowed by industry guidance), or
(2) Presented the claim liability separately from insurance
recovery consistent with ASC 210-20 (asset and liability
offsetting guidance).
FASB now requires health care entities to follow the same
rules as other industries for balance sheet offsetting i.e.
requirements of ASC 210-20 must be met.
#4 Insurance Recoveries – The Rules
16. Under ASC 210-20, offsetting of conditional or
unconditional liabilities with anticipated insurance
recoveries from third parties is generally not
permissible.
“The Kicker” - The presentation guidance applies to
other similar contingent liabilities such as workers’
compensation claims, employee health claims and
officers’ and directors’ claims.
#4 Insurance Recoveries – The Rules
17. Health Company, Inc. has a gross liability for
malpractice claims of $1M of which $700k has been
submitted to the insurance carrier.
The insurance agent deals with ALL aspects of the
claim including paying the settlement.
Current practice – accrue liability of $300k
Revised practice – accrue liability of $1M and
receivable of $700k
#4 Insurance Recoveries – Example
18. Do the rules apply when the entity’s insurer deals
with all aspects of the claims, including settlement?
The entity is still the primary obligor for payment of
the claim.
Unless offsetting is allowed (ASC 210-20-45-2), the
entity should record the claims liabilities separately
from the receivable for insurance recoveries.
#4 Insurance Recoveries – Example
19. Gross presentation reflects that the entity remains
obligated for the claim and that the entity is exposed
to credit risk from the insurer.
#4 What was the FASB thinking?
20. Current liabilities:
Expected to be paid/liquidated in a short period of
time i.e. 12 months
Expected to require use of existing current assets or
incur other current liabilities
Not intended to include long term obligations
expected to supplement working capital for long
periods of time
#5, #6, #7 Debt Classification – The Rules
21. Issue – An entity has long term debt. A debt
covenant has been violated and a waiver has been
obtained from the lender. How should the debt be
classified on the balance sheet?
“The Kicker” – A waiver from the lender may not
automatically provide a entity with the ability to
classify the debt as noncurrent.
#5 Loan Covenant Waivers - The Issue
22. Lender may waive right to call debt for period greater
than one year but retain right to act on covenant
violations occurring after the waiver
Debt should be classified as noncurrent unless:
Violation occurred at the balance sheet date or would
have without the parties agreeing to modify the loan,
AND
It is not probable borrower will be able to comply with
covenant requirements within next 12 months.
#5 Loan Covenant Waivers - The Rules
23. Borrower has long-term debt and must comply with
loan covenants quarterly.
Incompliance at 12/31/12, however probable not in
compliance at 3/31/13.
Current or Noncurrent classification at 12/31/12?
Noncurrent – but disclose in 12/31/12 financials
probable 3/31/13 violation.
#5 Loan Covenant Waivers – Example 1
24. Borrower has long-term debt and must comply with loan
covenants quarterly
Not in compliance at 12/31/12 however waiver obtained
for 12 months and 1 day. Lender retains rights to act on
violations after waiver date.
Not probable borrower will meet 3/31/13 covenants but
probable will meet 6/30/13, 9/30/13 and 12/31/13.
Interim financials are not audited and do not contain full
disclosures
Current or Noncurrent classification at 12/31/12?
Current - violation occurred at 12/31/12 AND not probable
meet covenants within next 12 months.
#5 Loan Covenant Waivers – Example 2
25. Issue – In poor economic times, the likelihood that a
subjective acceleration clause (SAC) will be
exercised by a lender is higher.
“The Kicker” – Beware if your loan agreements
include subjective language such as “material
adverse change.” It could impact the classification of
your debt especially if you have a traditional lockbox
arrangement.
#6 Subjective Acceleration – The Issue
26. When a SAC is included in a debt agreement the
classification of the liability depends on the
likelihood of the lender exercising its rights.
Likelihood is remote = noncurrent
Likelihood is more than remote = borrower must
consider if current classification and/or disclosure is
required
#6 Subjective Acceleration – The Rules
27. Agreement states lender can accelerate payment if
1) borrower fails to maintain satisfactory operations
or 2) a material adverse change occurs
If acceleration clause is exercised repayment of loan
is due in 120 days
Borrower provides documentation that asserts
likelihood is remote
Current or Noncurrent classification at 12/31/12?
Noncurrent – just because there is an SAC does not
mean loan must be classified as current
#6 Subjective Acceleration – Example
28. Issue – Lockbox arrangements, subjective
accelerations clauses and springing lockbox
arrangements can cause complexity when
determining proper classification of liability.
“The Kicker” – Borrowings under a line of credit with
a lockbox arrangement will be classified as current
liabilities regardless of the line of credit due date
because borrowings are repaid from current assets
(need to meet exception otherwise).
#7 Revolving Credit Agreement – The Issue
29. If borrowings are due when the underlying short-
term notes roll over, determine if short-term notes
automatically replace other short-term notes upon
maturity and if the rollover extends beyond one year.
If so, classify borrowings as noncurrent if agreement
meets criteria in ASC 470-10-45-14b
These are the criteria used to classify a short-term
obligation that the borrower intends to refinance on a
long-term basis as noncurrent
#7 Revolving Credit Agreement – The Rules
30. If the agreement includes a lockbox and it is at the
borrower’s discretion, the existence of a lockbox
does not impact classification.
Does the lockbox arrangement require lockbox
deposits to be used to repay the loan without
another event occurring (happens automatically)?
If so, classify as current unless exception in 470-10-
45-14b met.
If agreement contains a SAC, it will fail criteria in 470-
10-45-14b automatically regardless if the SAC is
exercised.
#7 Revolving Credit Agreement – The Rules
31. Does the arrangement call for deposits to be
automatically applied to loan only if another event
occurs? i.e. springing lockbox arrangement
If so, existence of lockbox arrangement does not
impact classification.
Does it also have a SAC? If so, determine if
acceleration is remote or more than remote.
#7 Revolving Credit Agreement – The Rules
32. Lockbox SAC Current or Noncurrent Classification
None None Noncurrent
None Yes Noncurrent if it is remote lender will exercise its right
Traditional None Noncurrent only if 470-10-45-14b exception is met
Traditional Yes
Current because 470-10-45-14b exception will not
be met
Springing Yes Noncurrent if remote lender will exercise its right
#7 Revolving Credit Agreement – The Rules
33. Agreement dated March 1, 2012 for $30M 4-year revolver
Agreement permits a series of renews of 90 days each
until the end of the 4-year period
Lender requires all customer payments to be submitted
to lockbox which are used to pay down revolver
Current or Noncurrent classification at 12/31/12?
Noncurrent - Absent the revolver meeting the conditions
of 470-10-45-14b borrower would classify as current
because payments are being made from use of current
assets. However agreement meets requirement of 470-
10-45-14b for classification as noncurrent because of the
intent to refinance on long-term basis.
#7 Revolving Credit Agreement – Example
34. Agreement dated March 1, 2012 for $30M 4-year revolver
Agreement permits a series of renews of 90 days each
until the end of the 4-year period
Lender requires all customer payments to be submitted
to lockbox which are used to pay down revolver
Lender can require borrower to pay all outstanding
amounts within 30 days if material adverse change.
Current or Noncurrent classification at 12/31/12?
Current - One of the requirements of 470-10-45-14b is that
the agreement may only be cancelable within 1-year of
the borrower’s balance sheet date if borrower violates an
objectively determinable provision.
#7 – Lockbox Arrangements – Example
35. Debt agreements can have terms that can cause
surprising classification issues
Why do we care so much about debt classification?
Debt covenants may contain requirements for working
capital therefore debt classification is critical
Auditors may consider liquidity in assessment of
going concern
Potential lenders will assess borrower’s liquidity
#7 What was the FASB thinking?
36. Should be amortized over the shorter of their economic
lives or the term of the lease
Lease term includes fixed noncancellable term plus:
Periods covered by bargain renewal options
Periods where the lessee’s failure to renew the lease
imposes a material penalty whereby renewal is
reasonably assured
Renewal or extension periods that are at the option of
the lessor
Periods covered by ordinary renewal options
preceding the date in which a BPO can be exercised
#8 Amortization of LHI – The Rules
37. 10 year Noncancellable lease signed on Sept 1, 2005
with terms beginning Jan 1 2006
One renewal option for additional 5 years
Property in desirable location; market for space tight
If exercised renewal requires market rate adjustment
No cash penalty to lessee if renewal not exercised
Lessee invests $3M during remainder of 2005 with
useful life of 25 years
Leassee occupied space January 3, 2006
#8 Amortization of LHI – Example
38. Amortize over the shorter of estimated useful life of
assets (25 years) or lease term.
Would lessee suffer an “economic detriment” upon
termination at the end of initial term w/o renewal?
Lack of alternative space in the market, coupled with
the abandoned LHI, would constitute a penalty such
that at the inception of the lease, renewal is
reasonable assured.
Lease term would be 15 years (plus 3 months???).
#8 Amortization of LHI – Example
39. FTB 85-3, Accounting for Operating Leases with
Scheduled Rent Increases, stipulate that rent expense
for operating leases with rent-free periods or scheduled
increases must be accounted for on a straight-line basis
over the lease term, including the related holiday period
Unless another systematic and rational method is more
representative of the lessee’s pattern of use over time.
Treatment assumes that lessee takes possession of or
controls the property at the inception of the lease.
#9 Rent Holidays – The Rules
40. LHIs made by the tenant but funded by the landlord
under an operating lease
Should be recorded by lessee as LHI assets and
amortized
Incentive should be recorded as deferred rent and
amortized over straight line basis as a reduction in
rent expense
The treatment considers the incentive to be
inseparable element of overall agreement recognized
along with other lease provisions.
#10 Landlord/tenant Incentives – The Rules
41. January 1, 2006 lessee signed 10 year operating
lease
Fixed monthly rent of $20k with no renewal or rent
holiday
Lessee needs to make improvements to space to
satisfy business requirements
Lessor agrees to reimburse lessee 25% of first $1M
of improvements
January 1 through June 30 lessee spent $1.5M and
received $250k from lessor
Lessee occupies space on July 1, 2006
#10 Landloard/tenant Incentives – Example
42. LHI $1.5M amortized over 10 years = $150k/year
Deferred rent $250k over 10 years = $25k/year
Rent expense = $240k/year
Therefore Year 2
Rent expense $215k ($240k-$25k)
Amortization expense $150k
Don’t reduce the LHI by the incentive!
#10 Landloard/tenant Incentives – Example
43. In a February 7, 2005, SEC staff letter to the AICPA’s
Center for Public Company Audit Firms (CPCAF),
clarity on the application of three key issues for
lessees:
The proper amortization period for leasehold
improvements;
Accounting for rent holidays; and
The treatment of construction incentives received
from landlords.
The resulting wave of restatements highlighted the
diversity in long-standing industry practices and the
misapplication of existing GAAP in these areas.
#8,9,10 What was the FASB thinking?
45. JENNIFER GOODMAN, CPA
Assurance Principal | jennifergoodman@decosimo.com
Jennifer Goodman is an assurance principal with more
than 15 years experience in public accounting.
Jennifer provides audit and assurance services, including audits
of internal control over financial reporting, to privately held
businesses, public companies, not-for-profit organizations and
manufacturing and distribution clients. She contributes to the
firm’s manufacturing and distribution team by providing cost
accounting expertise, insights into best practices and specialized
advice regarding internal control issues. Her experience also
includes financial statement audits, audits of internal control over
financial reporting and limited scope consulting engagements for
foreign firms performing assurance engagements for foreign
SEC filers.