October 19

Private Company Reporting and Interest Rate Swaps

By Jeffrey M. Carlini, CPA

Background
FASB recently released ASU 2014-03 entitled Accounting for Certain Receive-Variable, Pay-Fixed Interest Rate Swaps-Simplified Hedge Accounting Approach. This new standard update is a consensus of the Private Company Council (PCC) and is part of FASB’s new efforts to meet the needs of private companies. In today’s lending climate banks usually lend funds to private companies at a variable interest rate. Many private companies would rather have the certainty of fixed rate debt. Due to this, either at the company’s request or the bank’s, the company enters into an interest rate swap agreement. This swap, commonly known as a “plain-vanilla” swap, will cause the company to pay a fixed rate and receive a variable rate effectively converting their debt to a fixed rate.

The accounting standard that governs these swaps is topic 815, Derivatives and Hedging. Prior to ASU 2014-03, all interest rate swaps including these “plain vanilla” swaps require complex accounting which is difficult for a private company to understand and comply with. Unless stringent criteria are met, the accounting standards require these swaps to be valued at fair value which results in income statement volatility.

Due to private companies’ concerns that the cost benefit and relevance of marking the swaps to market was impractical, the PCC came up with this new standards update applicable to all entities except for public businesses and not-for-profit entities.

Main Provisions
Under this new simplified hedge accounting approach, the interest expense recognized in a receive-variable, pay-fixed interest rate swap arrangement will be similar to the amount that would have been recognized if the entity had originally entered into fixed rate debt.

If the following conditions are met the swap is valued at settlement value instead of fair value:

    • Both the interest rate of the borrowing and swap and reset period are based on the same index (e.g. one month LIBOR).
    • The terms of the swap are typical and there is no floor or cap on the variable interest rate of the swap unless the borrower has a comparable floor or cap.
    • The debt and swap were entered into at the same time or no more than a few days apart.
    • The amount of the swap is less than or equal to the principal amount of the debt.
    • All interest payments on the borrowed amount during the term of the swap are designated as hedged.

How to Calculate Settlement Value
Settlement value is calculated by performing a present value calculation of the swap’s remaining estimated cash flows, using a valuation technique that is not adjusted for nonperformance risk. By eliminating the need to factor in nonperformance risk, this calculation is made substantially easier.

Applying the Standard
Documentation must be complete by the date on which the first annual financial statements are available to be issued. This is a good for companies because many times they do not consider the accounting implications of interest rate hedges until the year-end financials and disclosures are being prepared.

Any swap entered into prior to or after this standards update can be accounted for under the simplified hedge accounting approach. Disclosures for interest rate swaps are very close to current standards. Note that companies can keep their current accounting models and do not have to adopt this alternative approach. The ASU is effective for annual periods beginning after December 15, 2014, and interim periods within annual periods beginning after December 15, 2015, with early adoption permitted. This standard update should be a welcome sign to private companies that have been struggling with accounting for these types of swaps.

This post originally appeared on February 20, 2015 at ncaCPA.com

August 19

Carlini CPA, PLLC Relocated to a New Office, effective August 1

Carlini CPA, PLLC Relocated to a New Office, effective August 1

FOR IMMEDIATE RELEASE

Indian Trail, NC (August 2015) – Although in the same building in the Lake Park Town Center, Carlini CPA, PLLC has expanded to a new office located at 3804 Meeting Street, Indian Trail NC 28079. The firm serves the accounting and tax needs of Indian Trail, Matthews, Monroe, Charlotte and surrounding areas. Carlini CPA, a full service accounting firm with 40 years of experience, feels that the move was necessary due to recent growth.

Jeff Carlini, CPA of Carlini CPA, PLLC, says “Due to our growth, we are moving into a larger office to better serve our valued clients.” The firm values its clients and takes an interest in understanding their business and celebrating the successes of the business. The company strives to provide the highest level of client service. The relocation to a larger office was effective August 1.

Carlini CPA, PLLC is a CPA firm located in the Charlotte, NC region that provides Audit, Bookkeeping, Tax, QuickBooks, and Business Consulting Services. Visit the company’s website at www.carlinicpa.com

Company Contact
Jeffrey M. Carlini
704-604-2101
jeff@carlinicpa.com

August 19

Carlini CPA, PLLC, sponsors local swim team

Carlini CPA, PLLC, sponsors local swim team

FOR IMMEDIATE RELEASE

Indian Trail, NC (June 2015) – Carlini, CPA, PLLC has sponsored the Lake Park Piranhas swim team for the 2015 season. Carlini CPA, PLLC is a full service accounting firm in North Carolina serving Indian Trail, Monroe, Matthews, Charlotte and surrounding areas. With 40 years of experience, the company’s services include accounting, tax return preparation, QuickBooks consulting, training, and implementation services.

Jeff Carlini of Carlini CPA states, “Carlini CPA believes in supporting our local community and swimming is a great way for kids to stay active during the summer and compete in a healthy environment”.

Carlini CPA, PLLC is a CPA firm located in the Charlotte, NC region provides Audit, Bookkeeping, Tax, QuickBooks and Business Consulting Services. Mr. Jeffrey Carlini, CPA, CFE states, “We value our clients immensely, take a personal interest in understanding their business and celebrate their successes”. Visit the company’s website at www.carlinicpa.com

To learn more about the Lake Park swim team and the other great sponsors visit www.lakepark.swimtopia.com

Media Contact
Jeffrey M. Carlini
704-604-2101
jeff@carlinicpa.com

August 18

Carlini CPA, PLLC of Indian Trail, NC implements Portal Safe

Carlini CPA, PLLC of Indian Trail, NC implements Portal Safe

FOR IMMEDIATE RELEASE

Indian Trail, NC (May, 2015) – Portal Safe is a way to securely transfer documents and files from the client to the accounting firm.

Carlini CPA, PLLC is a full service Accounting firm serving Indian Trail, Monroe, Matthews, Charlotte and surrounding areas. The company has over 25 years of experience in the field of accounting. This company provides assistance in making informed decisions about finances. Client service is a priority as they prepare individual or corporate tax returns for their clients.

Portal Safe is a system in the cloud that allows clients (and Carlini CPA) pass documents back and forth effortlessly and securely. Jeff Carlini of Carlini CPA, PLLC says “We have implemented a secure portal system to make collaboration with our clients easy and to stay on the cutting edge of technology to deliver a better client experience.”

Carlini CPA strives to provide the highest level of client service. They want to be a business partner to their clients and will take the time necessary to understand clients and their business to serve them better. Carlini CPA feels that by getting a new portal system this will help them do so.

Carlini CPA, PLLC is a CPA firm located in the Charlotte region that provides Audit, Bookkeeping, Tax, QuickBooks and Business Consulting Services. Mr. Jeffrey Carlini, CPA, CFE states, “We value our clients immensely, take a personal interest in understanding their business and celebrate their successes”. Visit their website at www.carlinicpa.com

Media Contact
Jeff Carlini CPA
jeff@carlinicpa.com
3804 Meeting Street
Indian Trail, NC 28079
704.604.2101 office
704.705.2403 fax