3. “the job of accounting is to
keep capitalism honest”
Sir David Tweedie
Chairman of IASB
2001 to 2011
4.
5. The Times They Are a-Changing
• Harmonisation of IASB and FASB (US GAAP)
– “all major economies” converging on IFRS “in the
near future”
• Changes in balance sheet treatment around:
– “balance sheet window dressing”
– leasing
6. If it looks like a duck…….
“What’s 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 – leasing or
otherwise.”
“Companies 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.”
Hans Hoogervorst, Chairman, IASB, November 2012
7. Leasing harmonisation
2006
– IASB and FSAB initiated project to improve financial reporting of
leases under IFRS and US GAAP
16 May 2013
– IASB and FSAB released revised “Exposure Draft” on leasing
– IASB and FSAB versions almost identical
13 September 2013
– Comments on “Exposure Draft” due
2016/17
– Changes likely to come into effect
16. ESA and off balance sheet
“There are lingering questions around on vs. off balance
sheet treatment of ESA structures as FASB and IASB
accounting standards converge.”
“ESA 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.”
Source: Deutsche Bank & Rockefeller Foundation
18. Implications for EE financing
• Historically ESCos have used operational leases as a tool to get work
of the balance sheet of the client
• Operating leases will likely no longer be able to be used for off-
balance sheet financing.
• Final rules related to leases have not yet been released, but the
accounting of leases as on-balance sheet appears highly likely.
• 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.
• 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
• ESA and MESA structures have best chance of
being off balance sheet
• Require CAREFUL structuring – critical issues:
– Services orientated not equipment
– Customer control over assets
• Public sector requires guidance
– Different sub-sectors have different approaches
• Opportunity for new structures and business
models