Page 9 - Telecom Reseller April-May 2016

April/May 2016
Telecom Reseller 9

PETTA
sheet. For IFRS companies, the lease does not impact of the changes on your current and future
continued from page 3
have to be recognized if the value of the asset
leasing needs.
is low (with a benchmark less than $5,000), Enact a plan. With the information you’ve
are many reasons to lease equipment, and the recording and capitalizing Operating Leases. irrespective of term. (NOTE: is is not the case gathered, you can start planning the budget and
primary reasons will remain intact under the new Bank lenders and credit analysts already take into under US GAAP.)
resources necessary for updates and systems
rules, from maintaining cash ow, to preserving consideration the Operating Lease obligation How Should You Prepare for the New changes to support the new rules.
capital, to obtaining exible nancial solutions, to included in your footnotes. ey estimate the Standard?
Leverage Opportunities from the Change
avoiding obsolescence.
value of the implied asset and liability created
With the new standard scheduled to take e ect While change may seem inconvenient at rst
What’s changing? What’s not?
by Operating Leases to adjust their measures
in 2019 for public companies and a year later for glance, reexamining and assessing business
Many of the lease accounting changes are and ratios used to make credit assessments. e private rms, now is the time to prepare. e processes to accommodate the lease accounting
relatively neutral. e biggest change is that the proposed formula to capitalize operating leases following are ve areas to address that will help changes could reap unexpected advantages.
new standard will change how operating leases under the new rules is substantially the same as make the lease accounting changes go smoothly Better information and controls can help enable
are accounted for on corporate balance sheets. the method used by rating agencies today.
for your business.
better tracking and asset management, avoid
Instead of appearing as a table of future payments e new rules will be implemented Inventory all equipment lease and rental redundancies and allow you to negotiate better
in the footnotes, they will appear on the balance retroactively, so all Operating Leases (except for contracts. Knowing the amounts and nature of lease terms throughout the organization.
sheet, but as a non-debt liability. e new rules short-term leases) will need to be capitalized in contractual obligations and terms of your leases e Equipment Leasing and Finance
have no impact on the income statement. ere the nancials reported in the transition year. If will enable you to understand your company’s Association (ELFA), its members, their customers
is a limited e ect on debt covenants. e rules for comparative balance sheets and P&L statements accounting and tracking needs.
and other stakeholders engaged constructively
classifying whether a new contract is a Capital are presented the Operating Leases must be Identify IT/so ware requirements. To with the FASB in its mission to revise lease
(Finance) or an Operating lease are virtually
capitalized in the earliest balance sheet. is determine if the technology in place will meet accounting rules in order to ensure a workable
the same as before under generally accepted means the impact may be sooner that you might the new standards, ask your accounting so ware standard that accurately re ects the economics
accounting principles (GAAP). Finally, the realize.
vendor how they plan to support the changes.
of the lease transaction and does not put undue
capitalized asset cost with Operating Leases will Whether you need to recognize all leases on Review your debt covenants. Although the burden on businesses or harm the U.S. economy.
be lower compared to a loan or cash purchase so the balance sheet depends on the lease terms lease accounting changes will have limited e ect For more information on the new lease
it is still important that the lease be an Operating and conditions. If you are reporting under on debt covenants, discuss fully any implications accounting standard, please visit www.
Lease even though it is capitalized.
International Financial Reporting Standards with your bank or creditors.
equipment nanceadvantage.org/newLAR.cfm.
Impacts for Telecom Companies
(IFRS)/U.S. GAAP, the answer is yes. However, Seek out industry expertise and counsel. In Disclaimer: e information in this document
As you consider the lease accounting changes, you if the contract duration is equal to or less than addition to getting accounting expertise, you’ll is a summary only and does not constitute
will want to understand what they mean to your 12 months, the o -balance-sheet approach want to consult with your equipment nance nancial advice. Readers should obtain their own
business.
previously used for Operating Leases applies. If provider. Providers have hands-on experience, independent accounting advice that takes into
For one, your credit rating should not change the contract quali es as a service, the contract informational resources and advice on industry account all relevant aspects of a particular lessor’s
just because the FASB changed the rules for
does not have to be recognized on the balance
best practices to help you assess the possible
or lessee’s business and products. ■

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