Mind the GAAP: How Recent Changes in US GAAP Accounting Impact Borrowers and Lenders

We tend to take accounting for granted—debits equal credits, total assets equal total liabilities and stockholder’s equity. Generally accepted accounting principles (GAAP) are generally accepted because they do not change often, and when they do, there are good reasons for the change.

However, business and the economy do change over time, and several new principles warrant review to understand how they will affect both borrowers and lenders--new GAAP for revenue recognition, lease capitalization, current expected credit losses (CECL) as well as changes to not-for-profit financials.

Much of the change in GAAP in recent years is the result of collaboration between the Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) to bring the US and international accounting principles closer together. At some point, both groups decided they were as close as they would be likely to get on several key concepts—revenue recognition, lease capitalization, and CECL. In addition, FASB decided to revise financial statement disclosure for the large and growing not-for-profit segment of the American economy.

• Why have these additions to GAAP been made?
• What are the key elements of each of these principles?
• What issues have arisen in implementing these new principles?
• How have these issues been resolved?
• What items of financial condition and performance do the updates impact most?
• How will these new principles affect lender and creditor underwriting of borrowers?

• Background of FASB and IASB accounting convergence
  o Close, but no cigar
  o Differences still exist
• Revenue Recognition
  o Seller recognizes revenue when buyer gets possession of good or service
  o Generally, sooner than later
  o More emphasis on gross revenues 
• Lease Capitalization
  o Troublesome off-balance-sheet loophole finally plugged
  o Whether operating or financing lease, both are capitalized 
  o Both lease liability and right of use (ROU) asset put on balance sheet
  o Higher leverage ratios, lower return on asset ratios
  o Cash flow impacts
• CECL
  o Incurred loss replaced by loss over life of loan
  o Higher probability of default
  o CECL means higher provision for credit losses in financials of borrowers, not just bankers
• Not-for-profits
  o Balance sheet simplified
  o More disclosure of liquidity

This webinar will benefit:

• Bankers
• Lenders
• Trade Suppliers
• Credit Approvers
• Underwriters
• Credit Analysts
• Loan Reviewers    
• Loan Administrators
• Loan Documentation Specialists
• Credit Risk Managers
• Credit Department Managers 
• Relationship Managers
• Compliance Officers