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New Accounting Standards Can Significantly Impact Credit Agreements
By Kim Desmarais
New accounting standards for leases can have unintended consequences on debt covenants and financial ratios in credit agreements. Under the new rules (Accounting Standards Codification Topic (“ASC”) 842 and International Financial Reporting Standard (“IFRS”) 16), nearly all operating leases, in addition to finance leases (formerly, capital leases), are required to be recognized as a liability on the balance sheet of a lessee if the lease term is greater than twelve months.