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Government Grants: PPP Loans, ERC Program

2021-04-18T18:52:56+00:00 01/10/2021|Accounting for PPP loans, Employee Retention Credits|

Accounting for Government Grants: General

The Coronavirus Aid, Relief, and Economic Security (CARES) Act provided substantial funds as economic incentives to qualifying businesses. Two main programs established as part of the CARES Act are Paycheck Protection Program (PPP) and Employee Retention Credits (ERC).

U.S. GAAP does not have specific accounting guidance relating to government grants. Generally, reporting entities account for government assistance by analogy to IAS 20, Accounting for Government Grants and Disclosure of Government Assistance.

Based on IAS 20, government grants can either relate to assets or income. Grants related to assets are grants whose primary condition is that an entity should purchase, construct, etc. long-term assets. IAS 20 defines grants related to income as all grants that are not related to assets.

IAS 20, par. 29 provides that grants related to income can be presented in one of two ways:

  • A credit in the income statement, either separately or under a general heading, such as “other income”;
  • A reduction to the related expense;

Grant proceeds are not reported as part of entity’s revenue/sales from customers.

According to IAS 20, grants related to asset are to be presented on the balance sheet using one of two methods. Grants can be recorded as deferred income when they are received. The deferred income is then recognized in the income statement on a systematic basis over the useful life of the related asset.

Under the second method, grant funds are deducted from the carrying amount of the related asset. This results in the asset being recorded at a lower amount and, therefore, a reduction of depreciation over the life of the asset.

Generally, entities should disclose the effect of grants on entity’s financial statements including balance sheet and the income statement. Entities are also required to disclose the nature of government grants received in the footnotes to their financial statements.

Accounting standard does not prescribe which method should be used. Entities should select one of the two accounting treatments as part of their accounting policy. Selected treatment should be applied consistently to all similar transactions.

Accounting for Employee Retention Credit

Under ERC program, an eligible entity may take a credit against employer’s portion of Social Security taxes withheld on qualified wages. The amount of credit is limited to employment taxes equal to 50 percent of the qualified wages an eligible employer pays to employees after March 12, 2020, and before January 1, 2021. An entity is eligible for the ERC if it has not received a PPP loan and certain other conditions were met. Overall, ERC program represents a government grant/assistance.

The ERC grant appears to be related to income as it provides a credit against certain payroll taxes.

As noted above, entities are allowed to either present ERC credits as a reduction of eligible payroll costs or as a separate line-item (credit) reported in the income statement. In either situation, a reporting entity would recognize ERC credit on a systematic basis over the same period that the entity recognizes related payroll taxes.

Accounting for PPP Loans

Paycheck Protection Program (PPP) was created by the CARES Act to provide certain small businesses with liquidity they need to support their operations during the pandemic. According to the terms of the program, entities have to meet certain eligibility requirements to receive PPP loans. The loans may also be forgiven if all employee retention criteria are met, and the funds are used for eligible expenses.

PPP loans have the interest rate of 1%. Loans issued prior to June 5 have a maturity of 2 years. Loans issued after June 5 have a maturity of 5 years.

Current accounting practice is as such that it is acceptable for an entity that received a PPP loan to account for it as debt under ASC 470, regardless of whether or not the entity expects the loan to be forgiven. The above accounting is based on the notion that the legal form of a PPP loan is debt.

However, an entity that expects to meet the loan forgiveness criteria may elect to account for the proceeds using government grant accounting model. Since PPP loans were designed to provide a direct incentive for small businesses to keep their workers on the payroll, the grant will be classified as related to income. Entities that do not expect to meet the PPP forgiveness requirements must account for the proceeds as debt.

Companies that that expect to meet the forgiveness requirements, may report the debt proceeds as either reduction of relevant payroll expenses or a credit in the income statement, reported separately. Entities following this approach will need to continually reassess their ability to meet the forgiveness requirements. Only portion of the loan expected to be forgiven may be recognized in entity’s income statement, either separately or as a reduction of eligible payroll costs. A reporting entity may have to reverse previously recognized income if it can no longer support a conclusion that it expects to meet the forgiveness requirements.


Important Note: FinAcco Consulting LLC is not responsible for, and no person should rely upon, any advice or information presented on this website. Note that entity’s financial statements, including, without limit, the use of generally accepted accounting principles (“GAAP”) to record the effects of any proposed transaction, are the responsibility of management. Therefore, any written comments by FinAcco Consulting LLC about the accounting treatment of selected balances or transactions or the use of GAAP are to serve only as general guidance. Our comments are based on our preliminary understanding of the relevant facts and circumstances and on current authoritative literature. Therefore, our comments are subject to change.

FinAcco Consulting LLC does not assume any responsibility for timely updates of its website overall or any information provided in the Insights section of the website, specifically.


 

Impact of ASU 2020-06 on accounting for convertible debt

2021-04-22T17:56:59+00:00 09/22/2020|Accounting, Accounting for convertible debt|

The impact of ASU 2020-06 is somewhat intertwined with existing (legacy) accounting for convertible debt instruments. The key question relating to accounting for convertible debt is how to account for the conversion feature embedded in debt sometimes referred to as “debt host”.

Under existing U.S. GAAP, a debtor first makes a determination if it is eligible and, if so, if it elects to account for debt at fair value. If the fair value option was elected, the debt and the embedded conversion option are reported as one liability instrument, measured at fair value.

If the fair value option cannot be or was not elected, the convertible debt may be accounted for under one of the following accounting guidance:

  • Derivative Financial Instruments
  • Cash Conversion Features (CFF)
  • Beneficial Conversion Feature (BCF)
  • Debt with Significant Premium

Accounting analysis is performed in the same order as accounting guidance is listed above, i.e. top down. Diagram A, Convertible Debt: Accounting Guidance illustrates application of existing accounting rules to convertible debt. Diagram B, Application of Derivative Accounting Guidance provides details on the application the derivative accounting under the existing guidance.

Note that the fair value option may not be elected for convertible debt that is subject to cash conversion guidance or debt that has beneficial cash conversion feature.

FinAcco publication Convertible Debt, issued in the series Complex Accounting Issues provides further details on the application of the existing accounting rules for convertible debt.

Removal of BCF and CFF models

New guidance removes accounting models for beneficial conversion features (BCF) and cash conversion features (CCF).

Under the revised guidance, the embedded conversion features is separated from the host contract only if the conversion feature:

  1. is required to be accounted for under Topic 815, Derivatives and Hedging, or
  2. results in substantial premiums accounted for as paid-in capital.

Topic 815 includes the criterion referred to as “clearly and closely” related as well as the scope exception from the derivative accounting. Therefore, according to the revised guidance, convertible instruments that continue to be separated are (a) those with embedded conversion features that are not clearly and closely related to the host contract, that meet the definition of a derivative, and that do not qualify for a scope exception from derivative accounting and (b) convertible debt instruments issued with substantial premiums for which the premiums are recorded as paid-in capital.

Consistent with the existing guidance, the revised guidance allows entities to elect the fair value model under which the combined instrument will be measured at fair value with changes in the value reported in earnings.

Overall, the new accounting guidance provides notably simpler accounting model as compared to the existing model. Given the removal of BCF and CCF accounting models, more conversion features will be accounted for as part of debt host and not separately.

The impact of the new accounting guidance is reflected in Diagram A by crossing off parts of the existing accounting guidance which were eliminated by ASU 2020-06.

Additional Equity Classification Requirements

As part of the application of derivative framework, a reporting entity applies the definition of the derivative financial instrument to the instrument in question. The reporting entity also performs an analysis to determine whether a contract meets the scope exception from derivative accounting per ASC 815-10-15-74. The scope exception analysis includes two criteria:

  1. the contract is indexed to an entity’s own stock; and
  2. the contract is equity classified.

New standard did not introduce any substantial changes to first criterion referred as indexation guidance.  FASB introduced certain simplification to the analysis of whether the contract is classified as equity.

The underlying premise of the accounting for convertible debt is that cash-settled conversion features are considered liability instruments reported separately from debt host. According to ASC 815-40-25-2, “…if the contract provides the entity with a choice of net cash settlement or settlement in shares, this Subtopic assumes settlement in shares.” However, not all share-settled contracts qualify for equity classification.

For a share-settled contract to be classified as equity, it should meet each of the additional seven classification conditions specified in ASC 815-40-25-10. Generally, additional equity classification requirements are intended to identify situations when the debt holder can force the debt issuer to settle in cash and not in equity.

Seven additional equity classification requirements are as follows:

  1. Settlement is permitted in unregistered shares;
  2. Entity has sufficient authorized and unissued shares;
  3. Contract should contain an explicit limit on the number of shares to be delivered;
  4. No required cash payment if entity fails to make timely filings with SEC;
  5. No cash-settled top-off or make-whole provisions;
  6. No counterparty rights rank higher than shareholder rights;
  7. No collateral required;

Condition 1 is based on the assumption that a public company is unable to control all events or actions required to main an effective registration statement. For example, a registrant cannot control whether an auditors will provide the audit opinion or consent required for a registration statement. Therefore, under the existing guidance, if the contract requires settlement in registered shares, equity classification is generally disallowed.

The idea behind condition 6 is that a contract cannot give the counterparty any of the rights of a creditor in the event of the entity’s bankruptcy.

Regarding condition 7, a contract requirement to post collateral of any kind by the issuer would preclude equity classification because a requirement to post collateral is inconsistent with the concept of equity.

New accounting guidance removes requirements 1, 6 and 7.

Regarding condition 4, FASB has clarified that penalty payments arising from the failure to timely file, do not preclude equity classification.

Other Changes

Under the existing guidance in ASC 815-40, FASB used the term conventional convertible debt to distinguish which instruments are eligible to apply a simplified assessment of the settlement criterion related to the derivatives scope exception (ASC 815-40-25-39). FASB concluded that the word “conventional” is not considered necessary and meaningful and, therefore, decided to remove it from the guidance. However, the above change did not have any substantial impact on the separation guidance as FASB retained simplified analysis applicable to certain convertible debt instruments in ASC 815-40-25-39 through 42 consistent with the existing guidance.

Under existing ASC 815-40-35-8, the classification of a contract as equity or liability/asset shall be reassessed at each balance sheet date. The new accounting guidance has clarified that the above reassessment guidance applies to both freestanding instruments and embedded features.

The impact of the new accounting guidance is reflected in Diagram B by underlining parts of the existing accounting guidance modified by ASU 2020-06.

Effective Date and Transition

The new guidance is effective for SEC filers, excluding smaller reporting companies as defined by the SEC, for fiscal years beginning after December 15, 2021. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2023. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020.

New guidance can be adopted by following either a modified retrospective method or a fully retrospective method of transition. In applying the modified retrospective method, entities should apply the guidance to transactions outstanding as of the beginning of the fiscal year in which the amendments are adopted. The cumulative effect of the change should be recognized as an adjustment to the opening retained earnings at the date of adoption. Under the fully retrospective method of transition, a reporting entity recognizes the cumulative effect of the change as an adjustment to the opening retained earnings in the first comparative period presented.

FASB allowed all entities to irrevocably elect the fair value option in accordance with Subtopic 825-10, Financial Instruments, for any convertible debt security upon adoption of the revised guidance.

 

 

 


Important Note: FinAcco Consulting LLC is not responsible for, and no person should rely upon, any advice or information presented on this website. Note that entity’s financial statements, including, without limit, the use of generally accepted accounting principles (“GAAP”) to record the effects of any proposed transaction, are the responsibility of management. Therefore, any written comments by FinAcco Consulting LLC about the accounting treatment of selected balances or transactions or the use of GAAP are to serve only as general guidance. Our comments are based on our preliminary understanding of the relevant facts and circumstances and on current authoritative literature. Therefore, our comments are subject to change. FinAcco Consulting LLC does not assume any responsibility for timely updates of its website overall or any information provided in the Insights section of the website, specifically.


 

Convertible Debt

2021-04-18T10:47:44+00:00 07/20/2020|Accounting|

What accounting rules apply to convertible debt under current U.S. GAAP?

Key question relating to accounting for convertible debt is how to account for the conversion feature embedded in debt sometimes referred to as “debt host”.

Under current U.S. GAAP, a debtor first makes a determination if it is eligible and, if so, if it elects to account for debt at fair value. If the fair value option was elected, the debt and the embedded conversion option are reported as one liability instrument, measured at fair value.

If the fair value option cannot be or was not elected, the convertible debt may be accounted for under one of the following accounting guidance:

  • Derivative Financial Instruments
  • Cash Conversion Features (CFF)
  • Beneficial Conversion Feature (BCF)
  • Debt with Significant Premium

Accounting analysis is performed in the same order as accounting guidance is listed above, i.e. top down. Diagram A, Convertible Debt: Accounting Guidance illustrates application of the accounting rules to convertible debt.

Note that the fair value option may not be elected for convertible debt that is subject to cash conversion guidance or debt that has beneficial cash conversion feature.

Derivative Financial Instruments

As illustrated in Diagram B, Application of Derivative Accounting Guidance, as part of derivative guidance, the reporting entity needs to address a number of financial reporting questions.

First, management needs to determine if the economic characteristics and risks of the embedded feature clearly and closely related to the economic characteristics and risks of the host contract (ASC 815-15-25-1(a)). The clearly and closely related concept is not specifically defined in US GAAP. Broadly, the evaluation refers to a comparison of the economic characteristics and risks associated with embedded feature to those associated with the host instrument. Generally, the host instrument in a convertible debt arrangement is considered “debt”, not “equity”, however a further analysis may have to be performed to confirm the above determination.

Economic characteristics and risks that affect debt include interest rates, credit considerations or inflation. Generally, economic characteristics and risks associated with a conversion option are those of an equity instrument, because the value of the conversion option is principally dependent on changes in fair value of stock. Therefore, in general, economic characteristics of the embedded conversion feature are not considered clearly and closely related to debt host. If so, management proceeds to the next step.

Reporting entity needs to determine if the conversion feature in question satisfies the definition of the derivative. A derivative should include all of the following: 1) underlying, notional amount or payment provision; 2) no or comparatively small initial net investment; 3) net settlement provision (ASC 815-10-15-83). Generally, a conversion option would have first two elements. More attention is devoted to determining if the conversion option meets the net settlement requirement.

In certain situations the debtor can only settle the debt by issuing equity shares (units) determined as follows:

“gross” amount of debt subject to conversion / applicable (contractual) conversion rate

For example, if the debtor owns $ 100 of debt (principal and interest) and can only settled it in shares at $ 10/share by issuing $ 100 / $ 10 = 10 shares, the above settlement is performed on a “gross” basis.

Settlements whereby the debtor settles the value of the conversion option in cash are considered “net” settlements as cash is a highly liquid asset. Similarly, if issuer’s shares are publicly traded, the settlement in such shares may meet the “net” settlement requirements as the shares can be readily converted to cash.

Otherwise, when the debtor can only settle the value of the conversion option on a “gross” basis, as illustrated above, in shares of privately held company, the net settlement requirement is likely not to be met. In such cases, the conversion option is not considered a derivative instrument and the debt including the conversion option is reported as one combined liability instrument. Further analysis is performed if the terms of settlement meets the net settlement requirement and the definition of the derivative instrument.

According to ASC 815-10-15-74(a), the reporting entity shall not consider conversion features to be derivative instruments if the feature in question is indexed to entity’s own stock and, if analyzed on its own, the feature would be classified in entity’s equity.

To determine if the instrument is indexed to entity’s stock, US GAAP guidance requires an entity to apply a two-step approach (ASC 815-40-15-7). Step 1 includes the evaluation of instrument’s contingent exercise provisions, if any. Step 2 is focused on the analysis of instrument’s settlement provisions.

As part of Step 1, management should evaluate all contingencies or conditions associated with exercise of investor’s rights under the terms of the instrument. Generally, a contingency based on reporting entity’s stock price or entity’s own operations would not preclude the instrument from being considered indexed to entity’s stock. Exercise contingency linked to entity’s IPO at a nationally recognized stock exchange or listing at an “over-the-counter” market does not prevent equity classification.

As part of Step 2, management should evaluate all adjustments to instrument’s exercise price as well as the amount of issuable shares. Generally, settlement provisions will not preclude equity classification if the exchange terms are as such that fixed number of the entity’s shares is exchanged for a fixed monetary amount, i.e. a fixed exercise price, subject to certain exceptions. The above rule is referred to as “fixed for fixed”.

Certain settlement adjustments designed to protect holder’s economic interest from being diluted by a transaction initiated by an issuer may pass the requirements of the “fixed for fixed” rule. Some qualifying adjustments referred to as standard anti-dilution include stock dividend, stock split, spin-off, rights offering or recapitalization through a large, nonrecurring cash dividend (ASC 815-40-20, Glossary).

Certain other adjustments do not prevent equity classification. Such adjustments include:

  • down round protection clauses (ASC 2017-11);
  • variables used as inputs to the valuation model used to determine the fair value of a fixed for fixed equity-linked instruments (ASC 815-40-15-7E);
  • subjective modification provisions benefiting the counterparty, not the reporting entity (ASC 814-40-15-7H);
  • terms of fundamental transactions triggering payment to debt holders of the same consideration (e.g. cash, debt, etc.) that will be provided to all stockholders impacted by the transaction (ASC 815-40-55-2 through 55-6);

Debt with conversion options where the conversion rate and the amount of issuable shares are either fixed or are only subject to standard anti-dilution provisions described above is referred to as “conventional”. No separate accounting of the conversion options embedded in conventional debt is required.

Certain debt instruments considered indexed to entity’s own stock may not be classified as conventional. For this type of debt, the reporting entity needs to consider additional equity classification requirements per ASC 815-40-25-10. There are seven additional requirements. The following three requirements often receive the most attention:

  • Settlement is permitted in unregistered shares;
  • Entity has sufficient authorized and unissued shares;
  • Contract should contain an explicit limit on the number of shares to be delivered;

Instruments that meet all seven equity classification requirements are considered equity. They are accounted for as one instrument including debt host and embedded conversion option. The conversion option that does not meet any of the additional equity classification requirements should be separated from the debt host. If the conversion options is separated, it has to be measured at fair value initially and subsequently as long as it meets the separation criteria.

The reporting entity should reassess, at the end of each reporting period, to determine if (a) an embedded conversion feature that was not been separated should be separated or (b) a separated feature is no longer meets separation requirements. If the previously separately conversion option no longer meets the separation requirements, it has to be re-classified to equity at its then fair value. Previously separated conversion option is not combined with the debt host.

Cash Conversion Features (CCF)

The cash conversion guidance applies to debt with conversion options that may be settled in cash or other assets. The guidance includes instruments settled in cash or other assets only at the option of the investors or at the option of the debt holder.

For example, let’s assume that an entity issued debt with a principal amount of $ 100 and the conversion price of $ 8/share. According to the settlement terms, the issuer (debt holder) may settle the debt in cash or stock at its discretion. Subsequently, the value of stock increases to $12 and the debt is converted. The entity determined the conversion value to be $ 100 / $ 8 * ($ 12 – $ 8)  or $ 50. The company has the option to pay the conversion spread value either in cash or with 4.2 shares determined as $ 50 / $ 12.

US GAAP offers valuation guidance to determine the value of the CCF. The value is determined as follow:

(carrying amount of debt) (estimated fair value of debt excluding the CFF but including all other embedded features, if any)

Debt with CCF is assumed to have lower interest rate than the comparable debt without the feature. Lower interest rate results into higher net carrying amount of debt as compared to the net fair value of debt without the CCF. The difference between the two is attributable to the value of the CCF.

CCF is considered an equity component. Once its value is determined, it should be separated from the convertible instrument and recorded in additional paid-in capital (APIC) by debiting debt discount and crediting APIC. Debt discount created by CCF is amortized over the expected debt term using the effective interest rate method (ASC 470-20-35-13). The amortization period is not reassessed subsequently.

Beneficial Conversion Feature (BCF)

A BCF is defined as a nondetachable conversion feature that is in the money at the debt issuance (commitment) date. BCF is measured at intrinsic value derived from converting debt into stock instead of receiving cash, using the market price on debt issuance (commitment) date. As an example, if the carrying amount of debt is $ 100, the conversion price is $ 8/share while share’s market value at the time when the debt was issued is $ 10/share, the BCF is calculated as 100 / 8 * 10 – 100 or $ 25.

Initially recognized BCF is not remeasured unless, according to the contract, the conversion rate is adjusted upon occurrence of a contingent event. In such cases, the BCF is remeasured when the contingency is resolved. Remeasured BCF is determined using the adjusted contractual conversion rate and the initial market price that existed at the time when the debt was issued.

A BCF should be separated from a convertible instrument and recorded in APIC. From this perspective, accounting for BCF is conceptually similar to accounting for CCF.

Debt discount arising from the above allocation is amortized using the effective interest rate method over the contractual term of the debt agreement.

Debt with significant premium

Convertible debt may be issued at a premium over the principal amount as the proceeds received upon the issuance exceed the principal to be paid at maturity. When considered substantial, in general, the entire premium is allocated to additional paid-in capital (ASC 470-20-25-13).

US GAAP does not define the term “substantial premium.” In practice, the amount of premium at or exceeding 10% of principal is considered substantial.

The issuer will not remeasure subsequently the initial premium amount recognized in equity.

Conclusion:

Under current U.S. GAAP, a debt holder first makes a determination if it is eligible and would like to elect to account for debt at its fair value. If not, the convertible debt may be accounted for one the following accounting guidance: Derivative Financial Instruments, Cash Conversion Features (CFF), Beneficial Conversion Feature (BCF), Debt with Significant Premium. If the conversion option is required to be accounted for separately under the derivative guidance, it has to be reported as a liability and measured at fair value initially and subsequently as long as separation requirements continue to be met. Under CCF, BCF and Debt with Significant Premium guidance, the value assigned to the conversion feature is reported separately as part of Additional Paid-in Capital (APIC). Valuation and measurement requirements for CCF, BCF vary depending on the guidance in question. As part of the accounting for convertible debt with significant premium, the entire premium is allocated to APIC.

Diagram A

Convertible Debt: Accounting Guidance

 

Diagram B

Application of Derivative Accounting Guidance


Important Note: FinAcco Consulting LLC is not responsible for, and no person should rely upon, any advice or information presented on this website. Note that entity’s financial statements, including, without limit, the use of generally accepted accounting principles (“GAAP”) to record the effects of any proposed transaction, are the responsibility of management. Therefore, any written comments by FinAcco Consulting LLC about the accounting treatment of selected balances or transactions or the use of GAAP are to serve only as general guidance. Our comments are based on our preliminary understanding of the relevant facts and circumstances and on current authoritative literature. Therefore, our comments are subject to change. FinAcco Consulting LLC does not assume any responsibility for timely updates of its website overall or any information provided in the Insights section of the website, specifically.


 

Down Round Protection

2020-07-05T15:11:31+00:00 07/05/2020|Accounting|

How down round protection clauses impact accounting for equity-linked financial instruments?

The Notion of Down Round Protection

Many companies obtain financing through more than one round of transactions in which they issue equity or equity-linked instruments. Common examples of equity-linked instruments include warrants, convertible debt or convertible preferred stock. Down round protection is a common feature in many instruments that limits the dilution of the economic interest held by the existing investors when the issuer sells new instrument at a price lower than the price of the original instrument. More broadly, the down round feature may protect from any or most reductions in the price of issuer’s shares (or equity-linked instruments) occurring subsequent to the issuance of the original instrument.

US GAAP defines a down round feature as follows (ASC 260-10-65-4):

“A feature in a financial instrument that reduces the strike price of an issued financial instrument if the issuer sells shares of its stock for an amount less than the currently stated strike price of the issued financial instrument or issues an equity-linked financial instrument with a strike price below the currently stated strike price of the issued financial instrument.

A down round feature may reduce the strike price of a financial instrument to the current issuance price, or the reduction may be limited by a floor or on the basis of a formula that results in a price that is at a discount to the original exercise price but above the new issuance price of the shares, or may reduce the strike price to below the current issuance price. A standard antidilution provision is not considered a down round feature.”

There are two main types of down round protection: weighted-average and full-ratchet. As part of full-ratchet protection, the lower subsequent price applies to the previously issued equity-linked instrument so that the amount of issuable shares under the terms of the original instrument is determined using the lower subsequent price per share. As part of the weighted-average protection, original instrument’s price is determined using the following formula:

New Price = P1 * (A + C) / (A + B), where

P1 is “old” exercise price;

A is number of shares outstanding immediately prior to new issuance on a fully diluted basis;

B is the number of newly issued or issuable shares;

C is aggregate consideration received as part of the new issuance divided by the “old” exercise price;

According to the above formula, the adjusted price is lower if a) the amount of newly issued or issuable shares is higher and/or b) the amount of consideration received as part of the new issuance is lower.

The above formula is referred to as a “broad-based” weighted average. In the “broad-based” weighted average formula, the number of shares outstanding immediately prior to the new issuance is determined on a fully diluted, or “if converted” basis. That means, that all outstanding options, warrants and other convertible instruments are considered to be converted. In a “narrow-based” version of the weighted average formula, the amount of shares outstanding immediately prior to the new issuance is determined as actual outstanding shares without giving effect to potential dilution arising from convertible instruments.

Overall, full-ratchet clauses provide investors with greater protection than weighted-average.

Classification of Debt vs. Equity

Key issue arising from accounting for equity-linked financial instruments is whether they should be accounted for as an equity or a liability instrument. The classification decision is important primarily due to the requirement to revalue liability instrument at fair value subsequent to the initial recognition with the changes in fair value reported in earnings. Liability classification may likely result in higher volatility of entity’s earnings. The classification may also increase valuation expenses.

In part, the classification decision depends on whether the instrument in question is indexed to (i.e. closely associated with) entity’s own stock. Broadly, if the instrument is indexed to entity’s stock, it is accounted for similar to stock, i.e. as part of entity’s equity. To determine if the instrument is indexed to entity’s stock, US GAAP guidance requires an entity to apply a two-step approach. Step 1 includes the evaluation of instrument’s contingent exercise provisions, if any. Step 2 is focused on the analysis of instrument’s settlement provisions (ASC 815-40-15).

As part of Step 1, management should evaluate or contingencies or conditions associated with exercise of holder’s rights under the terms of the instrument. Generally, a contingency based on reporting entity’s stock price or entity’s own operations would not preclude the instrument from being considered indexed to entity’s stock. Exercise contingency based linked to entity’s IPO or listing at “over-the-counter” market does not prevent equity classification.

As part of Step 2, management should evaluate all adjustments to instrument’s exercise price as well as the amount of issuable shares. Generally, settlement provisions will not preclude equity classification if the exchange terms are as such that fixed number of the entity’s shares is exchanged for a fixed monetary amount, subject to certain exceptions. The above rule is referred to as “fixed for fixed”.

Certain settlement adjustments designed to protect holder’s economic interest from being diluted by a transaction initiated by an issuer may pass the requirements of the “fixed for fixed” rule. The adjustments in question arise from antidilution provision as defined in US GAAP (ASC 815-40-25-41). Such adjustments include stock dividend, stock split, spin-off, rights offering or recapitalization through a large, nonrecurring cash dividend (ASC 815-40-20, Glossary).

Additionally, subjective modification provisions included in the terms of the instrument do not affect the determination of whether an equity-linked instrument is considered indexed to the reporting entity’s stock as long as the provisions in question benefit the counterparty, not the reporting entity (814-40-15-7H). For example, if management allowed to reduce the conversion rate of the debt at any point in time, this fact alone does not prevent the conversion option to be classified as equity.

Another, broader set of acceptable adjustments (or variables) impacting the exercise price or amount of issuable shares are the variables used as inputs to the valuation model applied to determine the fair value of a fixed for fixed equity-linked instruments. Examples of such inputs are risk-free interest rates, instrument’s term or fair market value of the underlying. All above variables are the inputs in the standard Black-Scholes-Merton valuation model. Adjustments to the exercise price or conversion rate linked to the above variables may not prevent equity classification.

For example, an entity may issue a warrant with the term of 7 years and the exercise price of $ 10/share at the time when shares market value is $ 10. According to the terms of the warrant, warrant’s strike price will be reduced by 5% to $ 9.5/share at the end of 5th anniversary from warrant’s issuance date provided that the warrant remains outstanding. The provision encourages warrant holders to hold their instruments for a longer period of time. In the above example, reduction in the strike price is linked to the passage of time and can be viewed as compensation for the shorter remaining term of the instrument. Since the term of the instrument is an input in the fixed for fixed equity-linked instrument, such an adjustment may not prevent equity classification.

Standard antidilution provisions, subjective adjustments and inputs used in the valuation of fixed for fixed equity instruments are the main (but not the only) adjustments that do not prevent equity classification. Other adjustments to the exercise price and/or the amount of issuable shares may result in classification of the instrument as a liability.

Revised Guidance on Down Round Protection

In July 2017 FASB issued ASU 2017-11 amending accounting for certain financial instruments with down round features.

Prior to the adoption of ASU 2017-11, instruments with down round protection provisions were not considered indexed to entity’s own stock. This was based on the fact that the issuance of another equity contract with a lower strike or conversion price is not an input to the fair value of a fixed for fixed equity linked instrument (ASC 815-40-55-33 through 34).

As part of the revised guidance, when determining whether certain financial instruments should be classified as liabilities or equity instruments, a down round feature, as defined, no longer precludes equity classification when assessing whether the instrument is indexed to an entity’s own stock.

Note that the above revision did not impact certain other equity classification requirements including seven additional requirements stated in ASC 815-40-25-10. One of the additional requirements is that the contract should contain an explicit limit on the number of shares to be delivered in a share settlement (ASC 815-40-25-10c). For example, if conversion price of debt is adjusted periodically to reflect recent changes in company’s price of stock, the conversion option may not be classified as an equity instrument as there is no limit on the amount of issuable shares. This is the case despite the fact that the adjustment provisions would qualify as a down round protection. Note that debt instruments with continuous adjustments to the conversion feature (“indexed debt”) may be subject to accounting requirements in ASC 480 or ASC 470-10-35-4.

At a conceptual level, it is possible to contemplate additional requirements of a “qualifying” down round feature that would not prevent equity classification. A hypothetical example of the additional requirement is the extent of “separability” of newly issued shares or other equity instruments from the original instrument. A lower price of a share (or other equity-linked instrument) triggering a down-round protection clause must relate to a clearly different issuance of shares, e.g. a separate round of financing. To further ensure that newly issued shares are clearly separate from the previous instruments, a hypothetical requirement might be that the entity must authorize to issue the new shares (or other equity-linked instruments) subsequent to when the original instrument was issued. Lastly, for a down round protection clause to be considered “qualifying”, newly issued shares or other equity instruments triggering the protection, must be substantively similar to the previously issued instrument.

A potential “narrower” definition contemplated above may substantially reduce the scope of application of the down round protection exception introduced by ASU 2017-11.

We noted that the definition provided by FASB does not impose additional requirements contemplated above. According to the definition, a down round protection is “a feature…that reduces the strike price…if the issuer sells shares of its stock for an amount less than the currently stated strike price of the issued financial instrument or issues an equity-linked financial instrument with a strike price below…” (emphasis is added). In other words, the definition allows the trigger of the pricing adjustment to be based on the trading of existing and previously issued shares, not additionally issued shares (or equity-linked instruments).

Similarly, FASB did not introduce any explicit requirements for how similar newly issued/traded instruments and previously sold instrument should be. We are aware that some accounting firms developed their interpretative guidance to address the above issue of “similarity”.

Under ASU 2017-11, the issuer would recognize the value of the down round protection feature i.e. settlement adjustment only when it is triggered and not before that. The impact of the triggered down round feature increases the value of the instrument that includes the feature, on the one hand and is recorded as deemed dividends, i.e. a debit to retained earnings, on the other hand. Because of the above requirement, potential impact of the feature is excluded from the initial valuation of the equity-linked instrument, i.e. the initial valuation is performed assuming that there is no feature.

ASU 2017-11 is effective for public business entities companies for fiscal years beginning after December 15, 2018 and for all other companies for fiscal years beginning after December 15, 2019. Earlier adoption is permitted.

Conclusion:

As part of the revised guidance, when assessing whether the instrument is indexed to entity’s own stock, a down round feature, as defined, no longer precludes classification of the equity-linked instrument as equity. The definition of a down round protection is broad and does not require that the subsequent reduction in price relates to financial instruments issued subsequently to the original instrument. The revised guidance does not amend other equity classification requirements including the requirement that the contract should contain an explicit limit on the number of issuable shares (ASC 815-40-25-10c). Potential impact of the down round protection feature is excluded from the initial valuation of the instrument, i.e. the valuation is performed assuming that there is no feature.

 


Important Note: FinAcco Consulting LLC is not responsible for, and no person should rely upon, any advice or information presented on this website. Note that entity’s financial statements, including, without limit, the use of generally accepted accounting principles (“GAAP”) to record the effects of any proposed transaction, are the responsibility of management. Therefore, any written comments by FinAcco Consulting LLC about the accounting treatment of selected balances or transactions or the use of GAAP are to serve only as general guidance. Our comments are based on our preliminary understanding of the relevant facts and circumstances and on current authoritative literature. Therefore, our comments are subject to change. FinAcco Consulting LLC does not assume any responsibility for timely updates of its website overall or any information provided in the Insights section of the website, specifically.


 

Changes in Debt Terms

2020-06-19T20:27:04+00:00 06/19/2020|Accounting|

How should debtors account for changes in the terms of debt?

General

Under U.S. GAAP, a change in debt terms is accounted for under one of the three accounting models:

  1. Troubled Debt Restructuring (TDR);
  2. Extinguishment of the existing debt and the issuance of new debt;
  3. Modification of the existing debt;

Management should first determine if the change in the terms of debt should be accounted for as TDR.

TDR accounting model applies when a) the debtor is experiencing a financial difficulty and b) the creditor has granted the debtor the concession specifically due to the financial difficulty. The concession is granted if the effective interest rate of the modified debt is lower than the effective rate of the pre-modified debt. The effective rate is a level rate applied to the sum of the carrying amount of the debt including face amount and the unamortized premium or discount, used to arrive at a periodic interest expense.

Conceptually, the effective rate equates, through application of present value techniques, future cash payments related to debt including interest and principal with the carrying amount of debt. Effective rate of modified debt is calculated to equate the future cash payments associated with the modified debt with the carrying amount of pre-modified debt immediately before the change in debt terms (ASC 470-60-55-10).

Other things being equal, the effective rate will decrease if the creditor forgives part of the debt in exchange for debtor’s repayment of the remaining debt in accordance with the original terms. However, the reduction of the effective rate may also be due application of the compound interest rate techniques used in discounted cash flow calculations. For example, if the debt holder agrees to defer repaying interest-bearing principal while other terms, including face interest, remain the same, the deferral may result in the lower effective interest rate. This is because debt issued for a longer term with the same face interest is “cheaper” from debtor’s perspective or provides a lower compound return to the creditor than a similar debt issued for a shorter term. Judgement may be required to determine if the concession took place, from the accounting perspective, as a result of the change in debt terms.

TDR accounting varies depending on whether the undiscounted cash flows of the modified debt are higher or lower than the carrying amount of debt immediately before the modification.

TDR Option 1: If the undiscounted cash flow are lower, a gain is recorded for the difference. The carrying value of the debt is adjusted to equal the future undiscounted cash flow amount. No interest expense is recorded going forward.

TDR Option 2: If the undiscounted cash flow are higher than the carrying amount of debt, a revised effective interest rate is established based on the carrying value of the original debt and the revised cash flows. There is no day one income statement impact.

The situation when undiscounted cash flow are higher than the carrying amount of debt is common when debt related payments were deferred but no part of debt principal or interest was “forgiven” by a debt holder. In this case, the sum of future cash payments including the interest will generally exceed the carrying amount of debt before the change in debt terms took place. This is because the carrying amount excludes future interest cash payments, included in future undiscounted cash flows used to determine which TDR accounting option applies.

Many borrowers sought to modify their debt agreements in the effort to mitigate existing adverse effects arising from COVID-19 pandemic. The question arose whether changes in debt terms should be accounted for as TDR.

On March 22, 2020 federal and state banking regulators issued a guidance, in consultation with FASB, indicating that “short-term modifications made on a good faith basis in response to COVID-19 to borrowers who were current prior to any relief, are not TDRs.” Further, according to the joint statement, the modifications in question include “short-term (e.g., six months) modifications such as payment deferrals, fee waivers, extensions of repayment terms, or other delays in payment that are insignificant.” Borrowers considered current if they are less than 30 days past due on their contractual payments at the time a modification program became effective.

If the TDR model does not apply, management needs to determine whether the change in debt terms should be accounted for using modification or extinguishment model. Overall, which model to apply depends on the extent of changes in debt terms, i.e. how different new and original terms are.

To determine the extent of changes in debt terms, an entity needs to perform a so called 10% test. As part of the test, the entity calculates present values of the remaining cash flows of the “new” debt and the “old” debt. If the difference between the two is at least 10% higher than the present value of remaining cash flows of the original debt, the modification is considered an extinguishment. Otherwise, the change in debt terms is considered a modification.

In general, if modified terms include a non-cash component, e.g. warrants, the value of the non-cash consideration is treated as a day one cash flow as part of the 10% test.

Extinguishment of debt is accounted for by derecognizing “old” debt including debt discount and recognizing a “new” one, measured at fair value. The difference between the “old” carrying amount of debt and the fair value of the “new” debt is recognized in the income statement as extinguishment gain/loss.

Modification is accounted for by establishing a new effective interest rate that will amortize “old” debt to revised future cash flows. In this case, no gain or loss is recognized immediately. Generally, application of the modification accounting model will have the same impact on entity’s financial statements as application of TDR Option 2 discussed above.

In certain cases entities may issue a convertible debt to repay a non-convertible debt that has matured. In these situations, the debtor accounts for the repayment of the old debt at maturity in return for the non-cash consideration (i.e. the new debt) consistent with the extinguishment model. The new debt is measured at fair value. The difference between the fair value and the carrying amount of old debt is reported as an extinguishment or exchange gain or loss (ASC 470-20-30-19). The issuer is required to recognize intrinsic value of any BCF associated with the new debt. The above accounting model does not apply if the exchange transaction is a TDR, in which case the transaction must be accounted for in accordance with accounting requirements applicable to TDR per ASC 470-60.

Modification of Convertible Debt

Change in the terms of convertible debt is subject to additional accounting requirements. Similar to non-convertible debt, first, determination is made if the change in terms should be accounted for as TDR.

In general, if modification terms include a non-cash component, e.g. modification of the conversion option, the value of the non-cash consideration is included as a day one cash flow. The above inclusion applies to calculations of the revised effective interest rate and determination of undiscounted cash flows of the modified debt.

If TDR accounting does not apply, an entity should determine if the change in terms should be accounted for as modification or extinguishment. The evaluation is performed as a two-step process.

First, management performs a 10% net present value test described above. If the tests indicates that the change in terms is a modification, management proceeds to step two. Otherwise, the change is considered an extinguishment. The above 10% test performed ignoring the impact on the cash flows arising from the change in the conversion option.

As part of step two, management needs to determine the change in the fair value of the conversion option arising from the modification. If the change in the fair value of the conversion option is greater than 10% of the carrying amount of the original debt instrument immediately before the modification, the modification should be accounted for as an extinguishment. Otherwise, the change in debt terms is considered a “modification”.

According to ASC 470-50-40-10, if the modification adds or removes a “substantive” conversion option from the original debt instrument, the modification should be accounted for as an extinguishment. No 10% tests above are required to be performed in this case.

If the extinguishment model applied to convertible debt, the conversion option embedded in the modified debt will be reported as part of the modified debt (unless bifurcation requirements under ASC 815-40, Contracts in Entity’s Own Equity were met) and initially measured at fair value.

10% Cash Flow Test for Debt with Call/Put Option

If the pre or post-modified debt is callable or puttable, then separate cash flow analyses should be performed assuming exercise and non-exercise of the put and call. The scenario that generates the smallest change should be used in the 10% cash flow test (ASC 470-50-40-12c).

If the debt has a call or put option exercisable at any time, a debtor should assume that it is exercised immediately. This will usually result in the smallest change in cash flows. Therefore, the difference between the present value of the puttable or callable debt after the modification will always be lower than 10%. However, the above conclusion does not apply if the debt can only be repaid earlier at a premium or discount. In such situations, the early payment premium/discount should be factored into day one cash flow to see if the 10% cash flow test is met.

An example of a callable debt, from borrower’s perspective, can be a debt instrument that a debtor can prepay at any time. Existence of a non-contingent prepayment option embedded in pre and post-modified debt will frequently result in the difference in respective present cash flow values to be under 10%. In such cases, the entity should move to step two test focused on the changes in the value of the conversion option.

Modification of Convertible Debt with BCF

Special considerations apply to modification of convertible debt that contains a beneficial conversion feature or BCF.

Generally, a BCF is defined as a nondetachable conversion feature, other than separated conversion option that is in the money at the debt issuance date. BCF is measured at intrinsic value derived from converting debt into entity’s stock (equity) instead of receiving contractual cash. As an example, if the carrying amount of debt is $ 100, the conversion price is $ 9/share while share’s market value is $ 10/share, the BCF is calculated as 100 / 9 * 10 – 100, which equals $ 11. A BCF should be separated from a convertible instrument and recorded in additional paid-in capital as follows: Db Debt Discount; Cr APIC. Debt discount created by BCF is amortized over the contractual debt terms. If, according to the terms of contract, the conversion price is adjusted, BCF is remeasured as well.

For the purpose of the step two 10% test, the change in the fair value of the option should be compared to the current carrying amount of debt as if the BCF had not been separated at inception. In other words, while performing the respective 10% test, the entity ignores the impact of the unamortized debt discount arising from BCF. Alternatively, the use of the carrying amount of debt reduced by the discount will likely result in more changes in debt terms to be accounted for using the “extinguishment” model. Application of the “extinguishment” model under the above circumstances would not be representative of the facts and circumstances of specific debt modification transaction.

When the extinguishment accounting applies, the carrying amount of the “old” debt removed from the books may include the unamortized discount associated with BCF. Also, BCF recorded in APIC at inception will need to be “redeemed” or “derecognized” at part of the extinguishment accounting. The redeemed amount is intrinsic value of BCF as determined on the extinguishment date using the then-current market price of entity’s stock. The following entry is recorded to derecognize BCF: Db APIC; Cr Extinguishment Gain/Loss. The above entry is recorded regardless of how much of the initially recognized BCF was amortized through the date of the change in debt terms.

If the change in debt terms is accounted for as a “modification”, the issuer of debt is precluded from revaluating an existing BCF or recognizing a new BCF. The above approach is consistent with the application of the “modification” accounting model on prospective basis. However, an increase in the fair value of BCF should reduce the carrying amount of debt, i.e. increase a debt discount with a corresponding increase in APIC. Reduction in the fair value of the BCF should be disregarded (ASC 470-50-40-15).

Conversion Accounting

If a convertible debt instrument is converted pursuant to a contractual conversion option, the convertible debt is settled in exchange for equity and no gain or loss is recognized upon such conversion. In other words, the contractual conversion of debt is not an “extinguishment”. However, if the convertible debt has a beneficial conversion feature or BCF as defined above, the entity should recognize any unamortized discount resulting from the initial separation of BCF upon debt conversion as interest expense (ASC 470-20-40-1).

Induced Conversion

Induced conversion applies if the Company offers additional shares or other consideration (“sweeteners”) for a limited amount of time to incentivize investors to convert their convertible instrument on more favorable terms. As part of the induced conversion, an entity should recognize an inducement expense equal to the fair value of additional shares or other consideration issued to induce the conversion. The amount is determined as the fair value of all consideration transferred in excess of the fair value of shares transferred according to the original terms (ASC 470-20-40-16).

Conclusion:

Under U.S. GAAP, a modification in debt terms is accounted for under one of the three accounting models: 1. Troubled Debt Restructuring (TDR), 2. extinguishment of the existing debt and the issuance of new debt; 3. modification of the existing debt. Management should first determine if the change in debt terms is considered a TDR. TDR accounting model applies when a) an entity is experiencing a financial difficulty and b) the creditor has granted the debtor the concession due to debtor’s financial difficulty. If the TDR model does not apply, management needs to determine the change in debt terms should be accounted for as a modification or extinguishment. In such case an entity performs so called 10% cash flow test. Special accounting considerations apply to the change in terms of convertible debt and convertible debt that includes BCF. A different 10% test focused on the analysis of the change in the fair value of the conversion option may apply. The test is used to determine the extent of changes in debt term.

 


Important Note: FinAcco Consulting LLC is not responsible for, and no person should rely upon, any advice or information presented on this website. Note that entity’s financial statements, including, without limit, the use of generally accepted accounting principles (“GAAP”) to record the effects of any proposed transaction, are the responsibility of management. Therefore, any written comments by FinAcco Consulting LLC about the accounting treatment of selected balances or transactions or the use of GAAP are to serve only as general guidance. Our comments are based on our preliminary understanding of the relevant facts and circumstances and on current authoritative literature. Therefore, our comments are subject to change. FinAcco Consulting LLC does not assume any responsibility for timely updates of its website overall or any information provided in the Insights section of the website, specifically.


 

Underutilized Leased Property

2020-06-17T14:32:42+00:00 06/17/2020|Accounting|

Should a lessee accrue expected losses in connection with leased properties that are not fully utilized?

In light of existing pandemic situation, many employers allow or require their workforce to work from home. In a number cases, working from home arrangements led to substantial amount of unutilized or underutilized leased office space. Some employer-lessees attempted to restructure their lease agreement whereby reducing the amount of office space used and/or lease payments. Other lessees, especially those that plan that their workforce will return to the office when the situation allows, continue with the existing contractual lease terms.

Reduction in the use of office space while having to make lease payments may lead to certain office leases to be considered loss making. In principal, a determination that a lease is loss making may apply to the modified lease agreement, not the original lease that was not subject to modification.

Questions arose of how a lessee should account for loss making lease agreements. One question is whether lessees should accrue for expected losses associated with underutilized office space.

US GAAP does not provide a formal definition of a loss making contract. Generally, contracts are considered loss making if overall contract cost or payments exceed contract benefits. It is reasonable to assume that for the purpose of the above test, contract costs and benefits are determined for the overall term of the contract.

Accounting literature may refer to loss making contracts as “onerous”. Historically, US GAAP guidance relevant to onerous contracts was industry specific. There is no general authoritative guidance on when to recognize losses on onerous contracts and, if a loss is to be recognized, how it should be measured. Specific guidance is offered in relation to operating lease that is subleased subject to ASC 840, Lease or so called “old” lease standard. Under ASC 840, when an entity enters into a sublease that will result in a loss, the loss should be recorded when the sublease is executed (ASC 840-20-25-15). Otherwise, neither “old” nor “new” lease standard contains authoritative guidance that requires a lessee to accrue operating losses arising from the future contractual or expected use of the property.

In most cases, lessees reporting under US GAAP account for loss making lease agreement similar to how they account for other lease agreement. The accounting follows the general guidance established for leases, i.e. ASC 840 or ASC 842.

Accounting under IFRS:

Unlike US GAAP, IFRS has a general authoritative guidance for onerous contracts provided as part of IAS 37 Provisions, Contingent Liabilities and Contingent Assets. Onerous contracts are defined as contracts in which “the unavoidable costs of meeting the obligations under the contract exceed the economic benefits expected to be received under it”. (par. 10, Definitions)

IAS 37 requires entities to recognize liabilities for onerous contracts in accordance with general recognition criteria applicable to recognition of provisions and other liabilities. The recognition criteria include present obligation, “probable”, and “estimable” elements (par. 11 of IAS 37). The liability is measured at the lower of the cost to exit (i.e., any compensation or penalties arising from failure to fulfill the contract) or to fulfill the remaining obligations under a contract. Note that provisions of IAS 37 specifically apply to “any lease that becomes onerous before the commencement date of the lease” and other lease arrangements (par. 5(c) of IAS 37).

Conclusion: US GAAP guidance for loss making or onerous contract is industry specific. US GAAP guidance for leases does not contains the requirement to accrue operating losses arising from the future contractual or expected use of the property subject to lease (except for certain sublease arrangements). Therefore, in general, lessees make no such accrual. IFRS guidance requires recording the liability for in-scope onerous contracts provided general recognition criteria applicable to provisions are met.

 


Important Note: FinAcco Consulting LLC is not responsible for, and no person should rely upon, any advice or information presented on this website. Note that entity’s financial statements, including, without limit, the use of generally accepted accounting principles (“GAAP”) to record the effects of any proposed transaction, are the responsibility of management. Therefore, any written comments by FinAcco Consulting LLC about the accounting treatment of selected balances or transactions or the use of GAAP are to serve only as general guidance. Our comments are based on our preliminary understanding of the relevant facts and circumstances and on current authoritative literature. Therefore, our comments are subject to change. FinAcco Consulting LLC does not assume any responsibility for timely updates of its website overall or any information provided in the Insights section of the website, specifically.


 

SOX Compliance: Easy or Difficult?

2020-07-13T08:57:27+00:00 01/27/2020|Internal Controls|

It’s not easy but does not have to be difficult if you approach it the right way. Generally, a SOX project involves operational elements (i.e. getting things done) and technical compliance. As compared to financial statements compliance with US GAAP, a SOX project is more operational and less technical. The bulk of SOX work boils down to coordinating the work of accounting, payroll, sales and other departments to ensure all proper control activities are documented, executed, and tested on time.
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Project Management: To Team Or Not To Team

2019-03-13T18:57:37+00:00 08/20/2018|Uncategorized|

I’d like to start with a project management topic that I am excited about.

The topic has to do with figuring out what task within a given project should be done individually and which by a team or group of people. Personally, I feel there is no clear enough understanding among managers on this subject.

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Leases 101: New Accounting Standard ASC 842 (Part 2)

2020-06-07T22:46:24+00:00 07/16/2018|Uncategorized|

In prior sessions we saw three examples that helped us identify a lease, which did not look as such on the surface.

Now, there is more to lease accounting than what you saw so far. Let’s learn more about how entities, especially lessees, have been affected by the new accounting standard.
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