New Accounting Statement Significantly Impacts Financial Statements

In May 2003, the Financial Accounting Standards Board released Statement #150 which will drastically change the financial presentation of any Company having a buy/sell agreement with any shareholders. For privately held entities, effective for years beginning after December 15, 2003, the buy back redemption must be presented as a liability on the balance sheet. This will, in essence, reclassify the entire equity section to a specific liability. All future net incomes or losses will not flow through to retained earnings. They will be reclassified to the liability entitled “Shares subject to mandatory redemption”.

Obviously, this may immediately place an entity out of compliance with certain loan covenants. These issues and concerns should be addressed soon. Please contact us for questions, concerns, and discussions.