Accounting Rules/Changes

Accounting Changes Happening this Year

It’s hard to argue with the SEC’s position that off-balance- sheet treatment of leases allow companies to easily make a finance purchase appear like a rental contract. Using current accounting standards, lessees are able to legally keep over 85 percent of an estimated $3.3 trillion of leasing commitments off their balance sheets, according to LeaseAccelerator. While most public companies for IFRS and FASB (GAAP) deadlines are in 2019 or 2020 depending upon the fiscal year calendar for a particular company, the SEC requires comparative parallel income statements for transactions, which for many will have to begin reporting in 2017 (depending on year-end).

So, how much of the leasing industry would be affected by these accounting rule changes? Since the SEC estimates that 63% of public companies use operating leases, and the estimated total cash flows related to non-cancelable operating leases outweighs the cash flows related to capital leases by more than 25 to 1, a significant percentage of the equipment leasing industry will be affected by the changes.

What will lessors and leasing sales professionals do if off-balance- sheet financing disappears and leasing products must be justified solely on economic terms? Without the advantages of off-balance-sheet leases, lessors will somehow have to position themselves as viable alternatives to basic interest-rate- spread lenders.

For those involved in structured transactions, if you don’t have a game plan in place for the new accounting environment, you may be left behind. The value propositions of lessors will need to emphasize creative financing products that address their customers’ pressing business problems, expertise in asset and risk management, and other operational benefits of leasing.

Whether or not the client requests a Capital Lease to take advantage of depreciation programs or not, the sizzle of leasing in the sales presentation will change. Perhaps there will be more Equipment Finance Agreement contracts introduced. Perhaps Alternate Financing will be replacing many leasing companies.

The end of true leases for the small and middle marketplace will surely present true challenges for the industry. Leasing industry boosters will no doubt argue that just as the industry survived and prospered after the repeal of the Investment Tax Credit, ways will be found to survive future changes in accounting rules. Having met a great many smart, creative leasing industry veterans, I would bet on this argument.

Steve Chriest is the CEO of Open Advance and author of “Selling to the E-Suite, The Proven System for Reaching and Selling Senior Executives and Business Acumen 101.” He produces video and radio blogs, as well as continuing as a columnist for Leasing News since 2005.

Companies Should Update Lease Accounting Systems

As the account year comes to an end, there is a major accounting change coming in 2016, with the FASB’s vote to proceed with its new standard for reporting lease obligations starts the clock ticking.

The FASB board voted to proceed with the standard, which will require companies to include lease obligations on their balance sheets. The final Accounting Standards Update is expected to be published in early 2016.

FASB decided the upcoming standard will be effective for public companies for fiscal years (and interim periods within those fiscal years) starting after December 15, 2018. For private companies, it will be effective for yearly periods beginning after December 15, 2019. The board will permit companies to adopt the measure early once the standard is published.

The big changes to lessee accounting “may require preparers to implement new systems and internal controls and will result in substantial additions of lease obligations to many balance sheets,” the Journal of Accountancy reported.

Still, the changes may not be as bad for U.S. companies as they could have been had FASB gone through with previous plans to converge its new lease-accounting standard with that of the International Accounting Standards Board. In August 2014, after years of trying to meld their standards, the two boards announced that they were going to go their separate ways.

To learn more about the timetable for the Financial Accounting Standards Board’s new leasing standard, click on the link below to read the entire article.

http://ww2.cfo.com/financial-reporting-2/2015/11/companies-update-lease-accounting-systems-experts-advise/

 

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CLIENT FOCUS  |  HONESTY AND INTEGRITY  |  RELIABILITY  |  ACCOUNTABILITY

Our Mission at Lease Genie:

  • Provide small and medium size business owners with access to a full line of asset based equipment finance solutions.
  • Understanding our client’s business requirements and will assist in overcoming current and future growth challenges.
  • Empowering our clients to meet these challenges and to achieve the growth and profitability.
  • Build a long-lasting partnerships and strives to become your sole source of capital management solutions.

You can always count on Lease Genie to foster a relationship based on the principles of integrity, trust, and the pursuit of excellence.

Contact Lease Genie for more information.

 

REF: CFO.com | US | (Nov. 12, 2015)

Tax Benefits/Section 179 for New/Used Equip. Purchases

I am often asked by clients about Tax Benefits / Section 179 of the U.S. Tax Code for new / used equipment purchases.

As businesses look to minimize their tax liability, Section 179 is the best Tax Benefits tool the government has to stimulate small and medium businesses.  Section 179 Tax Benefits is not meant for conglomerates; Section 179 is for small and medium sized businesses.  It’s a tax deduction that lets a business write off the full value of qualifying equipment, new or used.

Under Section 179 of the tax code, a business taxpayer can currently deduct, or “expense”, qualified assets placed in service during the year, up to a specified amount.  After a series of extensions (with some modifications), a maximum deduction of $500,000 was allowed for 2013, subject to a phase-out for assets costing more than $2 million.  However, when this provisions expired after 2013, the limit for 2014 reverted to a paltry $25,000 with just a $200,000 phase-out threshold.

There is on-going debate in United States Congress regarding extending Section 179 Tax Deduction / Tax Benefits, which is due to expire in 2015.

To read more about Section 179 click on the link below to read the entire article.

Tax Benefit, Understanding Section 179 of the U.S. Tax Code


CLIENT FOCUS  |  HONESTY AND INTEGRITY  |  RELIABILITY  |  ACCOUNTABILITY

Our Mission at Lease Genie:

  • Provide small and medium size business owners with access to a full line of asset based equipment finance solutions.
  • Understanding our client’s business requirements and will assist in overcoming current and future growth challenges.
  • Empowering our clients to meet these challenges and to achieve the growth and profitability.
  • Build a long-lasting partnerships and strives to become your sole source of capital management solutions.

You can always count on Lease Genie to foster a relationship based on the principles of integrity, trust, and the pursuit of excellence.

Contact Lease Genie for more information.

REF. – The LeaseGuy (September 23, 2015)