Nonprofit Blog

A new financial reporting standard issued by the Financial Accounting Standards Board (FASB) may require borrowers to re-evaluate their leasing decisions. The new standard, Accounting Standards Update No. 2016-02, Leases (Topic 842), goes into effect for annual periods beginning in 2019 for calendar-year public companies. Privately held borrowers will have an extra year to implement the changes.

Business owners often think that financial statement footnotes require too many detailed disclosures under U.S. Generally Accepted Accounting Principles (GAAP). In response to these criticisms, the Financial Accounting Standards Board (FASB) has launched a project to minimize so-called “disclosure overload.” But it’s important for the FASB to maintain a balanced approach when cutting back.

Borrowers that operate various lines of business under one “roof” may expose themselves and their bankers to high levels of financial and legal risks. But creating separate legal entities for different business lines or assets can reduce those risks.

For many types of businesses — including retailers and manufacturers — inventory is typically a leading source of collateral. But you can’t always accept inventories at face value, because borrowers may use different accounting methods to report their inventories. Before committing to a deal or when reviewing an existing customer’s financial performance, it’s important to understand how the company reports its inventory.

Mergers and acquisitions take months (or even years) of work to conduct due diligence, negotiate the terms and obtain financing. But the hardest work comes after closing, when management is tasked with integrating two corporate cultures into one combined entity.

Years of historically low interest rates have led many companies to stockpile cash and otherwise become lax in their working capital management. But excess cash in the bank and money that’s tied up in bloated inventory and receivables might be better spent investing in new business opportunities or repaying debt.

Taxes aren’t something that bankers usually discuss with borrowers. But this year might be an exception. Several major tax law changes occurred at the end of 2015 that will allow borrowers to plan with greater certainty and take advantage of numerous tax-saving opportunities.

Borrowers need to upgrade equipment to stay productive and competitive. But retiring these assets without following secure disposal protocol can be risky. Here’s an overview of what could possibly go wrong when a retired piece of equipment sits idle in a storage closet or garbage dump — or it’s returned to the leasing company.

From afar, the commercial lending process may appear comical. On one side of the desk you have the lenders, who want to manage their risk by loaning money to only successful business owners. On the other side of the desk, you have the business owners — many of whom believe they can’t truly become successful until they get the money!

A recent academic study appearing in the American Accounting Association’s (AAA’s) Accounting Review challenges the idea that a long-term relationship between a company and its auditors compromises professional skepticism and quality. These findings are relevant to lenders who rely on audited financial statements.