Technical accounting and managing your business’s financial statements may be some of the biggest challenges in optimizing your business’s operations. Your business needs resources, knowledge, and experience to ensure that your complex transactions are properly accounted for and disclosed. Ultimately, complex transactions require significant effort to research, document, record, and report. We specialize in these areas and will help you complete them accurately and efficiently.
Debt Versus Equity
Debt and equity are two categories of external finances that businesses use for funding, and oftentimes, they are used in combination based on the unique needs of each company. The accounting for these transactions may be complicated and result in an accounting conclusion that is unexpected, or even undesired. For example, it is possible to issue an equity instrument, such as a warrant or a preferred share, which ultimately is accounted for as a liability at fair value or mezzanine debt instead of equity.
In order to achieve the desired accounting for new issuance of debt or equity, our consultants can review your transactions prior to their execution to ensure the language and terms included in the document result in the desired accounting. For transactions that have already been executed, H4D can review the agreements and document the appropriate accounting conclusions for your internal records and your auditors.
A lease involves a contract between two parties with one party seeking the rights to control a specified asset controlled by the other party. Determining whether a contract is a lease and if the lease includes an embedded derivative requires specific knowledge of lease accounting in accordance with ASC 842 along with derivatives and fair value accounting within ASC’s 815 and 820. Our team can help you identify and document whether a contract meets the definition of a lease, what classification of lease it is, and prepare the appropriate journal entry schedules. We will also help you conclude and document if an embedded derivative exists, determine how to fair value the derivative, and prepare the appropriate journal entries and ongoing valuation methodologies.
A business combination refers to an entity that obtains control over one or more unaffiliated companies, most commonly through a purchase transaction. This may look like purchasing the net assets or equity interests of a business in exchange for consideration, such as cash or equity interests in the acquiring entity. A business combination is distinct from an asset acquisition, in which a company purchases an asset or a similar group of assets.
The accounting for a business combination is significantly more difficult than the accounting for asset acquisition. An asset acquisition is simply capitalized based on the fair value of the consideration given to the seller, plus the costs to acquire the asset. A business combination requires the assets and liabilities of the acquired company to be fair valued. There are also significant disclosures required for a business combination. For public companies, if the combination is deemed to be material in accordance with SEC rules, there are even more significant public filings that must be provided which detail what the combined companies would have looked like in the past (pro forma financials).
Our consultants are experts in determining whether an acquisition meets the definition of a business combination or an asset acquisition and providing the appropriate guidance to follow either method of accounting and disclosure.
Revenue Recognition (ASC 606)
Revenue is the foundation of all business performance, and revenue recognition is a complex accounting policy that must be appropriately assessed, documented, and implemented. The basic principle of ASC 606 consists of a five-step model for recognizing revenue which must be documented and consistently applied by a company. H4D’s expert consultants can review your existing or proposed revenue recognition processes for appropriateness and accuracy.
A derivative is a contract whose value is derived from changes in the price of an asset, ratio, or other observable input. Examples include a change in interest rate, commodity price, credit rating, or foreign exchange rate. Accounting for derivatives under US GAAP is governed by ASC 815 and ASC 820. Our services include valuation methodologies, journal entry creation, disclosure requirements, assessing whether a contract meets the definition of a derivative as a whole or contains an embedded derivative, assessing whether there are scope exceptions to avoid recognizing the derivative, and documentation of all the above. We can also train your staff to self sufficiently identify derivatives in the future.
WHAT OUR TEAM OFFERS
H4D Consulting offers decades of technical accounting expertise, including research, documentation, and accounting policy updates. Our team provides training to make your employees self-sufficient in research and analysis, reducing future costs.