3. âthe job of accounting is to
keep capitalism honestâ
Sir David Tweedie
Chairman of IASB
2001 to 2011
4.
5. The Times They Are a-Changing
âą Harmonisation of IASB and FASB (US GAAP)
â âall major economiesâ converging on IFRS âin the
near futureâ
âą Changes in balance sheet treatment around:
â âbalance sheet window dressingâ
â leasing
6. If it looks like a duckâŠâŠ.
âWhatâs more, the companies providing the financing are more often
than not banks or subsidiaries of banks. If this financing were in the
form of a loan to purchase an asset, then it would be recorded. Call it a
lease and miraculously it does not show up in your books. In my
book, if it looks like a duck, swims like a duck, and quacks like a
duck, then it probably is a duck. So is the case with debt â leasing or
otherwise.â
âCompanies tend to love off-balance sheet financing, as it masks the
true extent of their leverage and many of those that make extensive
use of leasing for this purpose are not happy.â
Hans Hoogervorst, Chairman, IASB, November 2012
7. Leasing harmonisation
2006
â IASB and FSAB initiated project to improve financial reporting of
leases under IFRS and US GAAP
16 May 2013
â IASB and FSAB released revised âExposure Draftâ on leasing
â IASB and FSAB versions almost identical
13 September 2013
â Comments on âExposure Draftâ due
2016/17
â Changes likely to come into effect
16. ESA and off balance sheet
âThere are lingering questions around on vs. off balance
sheet treatment of ESA structures as FASB and IASB
accounting standards converge.â
âESA is, in our opinion, the retrofit finance structure that
allows the commercial and institutional market to most
efficiently evolve and scale on its own, enhanced by, but
not requiring, external influences such as legislation and
subsidy.â
Source: Deutsche Bank & Rockefeller Foundation
18. Implications for EE financing
âą Historically ESCos have used operational leases as a tool to get work
of the balance sheet of the client
âą Operating leases will likely no longer be able to be used for off-
balance sheet financing.
âą Final rules related to leases have not yet been released, but the
accounting of leases as on-balance sheet appears highly likely.
âą There is also a lack of clarity as to whether emerging financing
strategies, such as PACE, on-bill repayment, and energy service
agreements (ESAs) will be treated as on- or off-balance sheet.
âą Stakeholder consultations reveal that PACE and on-bill repayment
are likely to be considered on- balance sheet, whereas there may
be ways to structure ESAs so that they remain off-balance sheet.
Source: Meister Consultants
19. The future
âą ESA and MESA structures have best chance of
being off balance sheet
âą Require CAREFUL structuring â critical issues:
â Services orientated not equipment
â Customer control over assets
âą Public sector requires guidance
â Different sub-sectors have different approaches
âą Opportunity for new structures and business
models