skip to main content

Loan Performance Could Worsen Under New Lease Accounting Standards

Loan Performance Could Worsen Under New Lease Accounting Standards

Transitioning to the new lease accounting standards, ASC 842, has been an operational challenge for many companies, but now it could effect loan performance. With the new ASC requirements including operating leases on company balance sheets, companies need to reevaluate their loan covenants to ensure they still meet the performance measures to avoid going into default.

First and foremost, Partner Patrick Farrelly said companies need to correctly determine debt contract provisions by reviewing the underlying documents for GAAP-freeze clauses, which facilitates projections of changes to the relevant metrics and debt covenant. The next step is for CFOs to start working with the organization’s bankers so both parties are in sync over the changes’ impact, he recommended.

Public company lenders have already gone through a similar process, so Farrelly said these recent changes should not prove to be new territory for them. And it’s very unlikely that a lender would dissolve a relationship with a good customer and call in a loan due to a technical default caused by a change in accounting principles, he noted. “What I've seen from my standpoint is people working together to try to make sure that both sides are happy and that everybody comes out with the original agreement and the emphasis of the original agreement,” Farrelly said.


Read the full article published by CFO Dive.


Please complete this form to hear from Patrick Farrelly

Hide Firm Disclaimer


UHY LLP is a licensed independent CPA firm that performs attest services in an alternative practice structure with UHY Advisors, Inc., and its subsidiary entities. UHY Advisors, Inc.’s subsidiaries, including UHY Consulting, Inc., provide tax and business consulting services through wholly owned subsidiary entities that operate under the name of “UHY Advisors” and “UHY Consulting”. UHY Advisors, Inc., and its subsidiary entities are not licensed CPA firms. UHY LLP, UHY Advisors, Inc. and UHY Consulting are U.S. members of Urbach Hacker Young International Limited, a UK company, and form part of the international UHY network of legally independent accounting and consulting firms. “UHY” is the brand name for the UHY international network. Any services described herein are provided by UHY LLP, UHY Advisors and/or UHY Consulting (as the case may be) and not by UHY or any other member firm of UHY. Neither UHY nor any member of UHY has any liability for services provided by other members.

On this website, (i) the term "our firm", "we" and terms of similar import, denote the alternative practice structure conducted by UHY LLP and UHY Advisors, Inc. and its subsidiary entities, and (ii) the term "UHYI" denotes the UHY international network, in each case as more fully described in the preceding paragraph.