Proposed changes to Accounting for Leases

it pours and pours

What is the proposed change?
For lessees, FASB and IASB believe that all lease contracts should be treated in a manner similar to the treatment of finance leases. Thus removing the existing requirement for lessees to differentiate leases as finance or operating leases.

Why the proposed change?

1. Firstly, current rules which determine lease classification may result in similar transactions reported very differently, leading to lack of comparability and significant amounts of off balance-sheet finance not being recognised.
2. Secondly, the right obtained by the lessee in a lease contract is the right to use the leased asset during the lease term. This right meets the definition of an asset. The lessee incurs an obligation to pay rentals in a lease contract, and that this obligation meets the definition of a liability. ("Right of Use" model)
   

Details of proposed change for LESSEE under "Right of Use model"

• Leases would be measured at cost initially ie.the present value of the lease payments, including initial direct costs incurred by the lessee.
  
• Present values would be calculated using the lessee's incremental borrowing rate as the discount rate.
• Expense to lessee would be interest expense on instalments paid. (Existing treatment is rental expense.)
  

Possible consequences

For the lessees, interest expense would thus be higher in the early years of a lease (compared with the current straight-line treatment for rent expense) ==> impact on accounting ratios / loan covenants / profitability / credit ratings and other external measures of financial

For the lessors, a significant chunk of their business could disappear overnight if the lessees decide to buy the assets themselves instead trying to rent.

Source - Accounting and Business Singapore 06/2010

F1, F2 and F3 Changes due in Dec 2011 Exams

orange juice from Bali

There will be changes to almost all exam papers effective Dec 2011 exams.

That would mean you have 2 paper-based tries based on current exam format left before the change.

So what are the changes due for F1, F2 and F3?
In short, the exam format will change from a pure multiple choice question (MCQ) format to a combination of MCQ and short questions basis format.

Paper F1, Accounting in Business
Section A - 16 x one-mark short objective test and 30 x two-mark short test questions.
Section B - 6 x four-mark longer version objective questions with one taken from each objective test questions of the six sections of the syllabus.

Paper F2, Management Accounting
Section A - 35 x two-mark short objective test questions
Section B - 3 x 10-mark longer version objective test questions – one taken from each of the budgeting, standard costing and performance measurement sections of the syllabus.

Paper F3, Financial Accounting
Section A - 35 x two-mark short objective test questions
Section B - 2 x 15 mark longer version objective test questions with one question based on group accounts and the other on preparation of financial statements (which may include an element of interpretation of accounts)
[Edgar says it looks like old topics will be re-introduced to the syllabus.]

Source - ACCA

After ACCA and CPA, how to get CoC?

It was the first initiative announced by ACRA in April 2010. It is the introduction of the colour-coded compliance rating and issuance of the Certificate of Compliance.

How to get the Certificate of Compliance?
First get the GREEN tick. Green tick will be given only when a company complies with ALL of the following requirements as enunciated in the Companies Act, Cap.50 ie.

1. Hold its AGM once in every calendar year and not more than 15 months
after the last preceding AGM (section 175). For a new company, the period is 18 months after date of incorporation.

2. Provide the members/shareholders with the financial statements that is not more than 6 months old at the date of the meeting. For a public listed company the financial statements must not be more than 4 months old at the date of the meeting.

3. File its AR within 1 month from the date of the AGM (section 197).

Once your company gets the GREEN tick, you pay $5 for a copy of Certificate of Compliance. Failing to comply, you will get the RED cross. All the GREEN ticks and RED crosses will be displayed next to your business entities' name for all to see in the free Directory of Business Entities.

What can I do with the Certificate of Compliance?
1. Show to banker to demonstrate that your company is behaving and ask for a discount on the interest costs.

2. Attached it to your resume as you present yourself to the next prospective employer as the key person in keeping the company neat and tidy.

3. Attached it to your performance appraisal as you discuss for a bonus.

4. Show to auditor. Try asking discount on ground that ACRA is certifying compliance already. No audit work is necessary there.

5. The auditors too can use the CoC to check on their prospects first before accepting appointment.

Good morning to you. Cheers

FASB and IASB to delay their marriage?

view from an office in Jakarta

Yes, there will be a delay of 6 months from the original date of June 30, 2011.

This is despite the fact that their family members from the G-20 group of industrial and emerging countries have been pushing them to stick to the original date since FASB and IASB announced their engagement in 2006.

So why the delay?

1. Firstly, FASB cannot keep up the pace preparing for their marriage.

To meet the deadline, FASB and IASB would have to release about 10 proposals in the next two months and rushing through the due process of public comment, blah blah blah, reconsideration by the respective board and adoption.

2. Both FASB and IASB want their marriage only after aligning major areas of the accounting rules, such as revenue recognition, leases, financial instrument accounting and financial statement presentation.

3. FASB is 38 years old now but it has never worked so hard before in its life to get ready for the marriage. FASB has never released more than three or four proposals at a time for public comment.

4. FASB and IASB's preparation were distracted by the financial crisis in 2008 and 2009. Both were forced to activate more resources to make changes to accounting rules related to the financial crisis. FASB dedicated one third of its 60 professional staff members during the crisis. IASB has a slightly smaller staff than the FASB.