(January 2011) Gold Mine or Fool’s Gold?: Debt is recorded on the right side of the balance sheet in recognition that it’s a source of capital, but users of financial statements recognize that it isn’t cash. Likewise, users of financial statements would recognize that moving the book reserve to the right side would not cause it to suddenly become cash.
How the new standards affect utility balance sheets.
Over the next year (or years), companies in Canada and the U.S. will make the transition towards adopting International Financial Reporting Standards (IFRS). These standards will have a substantial effect on the reporting requirements and financial disclosures of regulated companies. Utilities are preparing their accounting processes to meet a new regulatory standard.
Funds collected for cost-of-removal liabilities could finance capital spending.
The industry might be overlooking a source of capital for smart-grid and similar investments. Funds collected in depreciation accounts for cost-of-removal liabilities could finance capital spending projects.
Avoiding ‘earnings management’ requires transparency in reporting standards.
The SEC is taking steps toward substituting International Financial Reporting Standards for U.S. Generally Accepted Accounting Principles. Having certainty surrounding existing utility asset and depreciation accounting practices enhances the ability to use financial statements to accurately depict the results of operations and financial status of reporting entities.
International reporting standards are coming for U.S. public companies.
Adoption of IFRS (International Financial Reporting Standards) in the United States undoubtedly will mark a significant change for many U.S. companies. But this change should not be feared. Moving to an entirely new accounting structure ultimately might enable companies to streamline reporting processes and reduce compliance costs.