New Rules on Accounting to Influence Business Financial Services

Jack Humphrey, Regulatory journalist
November 25, 2010 /

The new standards on accounting proposed by the International Accounting Standards Board (IASB) and the Financial Accounting Standards Board (FASB) may see their impacts on business financial services as leases would have to be reported on balance sheet.

Capital Markets Director for PwC Elizabeth Schoonees said companies must take a closer look at these changes to be fully aware of their effects on business financial services, particularly in “financial performance ratios, debt covenants and accounting systems.”

These proposed changes in accounting standard do not only require leases to be reported on balance sheet but also a higher frequency of gathering information and making decisions.

Balance sheets of companies that lease assets would grow, their leverage ratios would increase, and their capital ratios would decrease. There will also be an alteration in their expense character and recognition pattern. These companies are also expected to see modification in their EBIT and EBITDA.

Their lease obligations would have to be re-measured. Another impact would be the necessary changes in their internal controls and accounting systems.

A survey conducted by PricewaterhouseCoopers on 3,000 companies worldwide to evaluate the effects of the proposed changes in leasing to business financial services showed a wide range of possible impacts, Schoonees said. These changes will at least increase the interest bearing debt, leverage and EBITDA of companies, according to the survey.

Schoonees said 24 percent of the surveyed companies would see over 25 percent increase in their debt.

Other industries whose business financial services are also likely to see the impact of the new accounting standard are real estate, healthcare services, telecommunications, logistics, retail, and professional services.

Schoonees said companies whose business financial services are affected by these changes may send their letters containing their comments to the IASB until December 15, 2010.

 

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