Consent solicitation and Deferred income: Difference between pages

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''Securities - debt - bonds - bond indenture''
''Accounting''.


A consent solicitation is a formal offer by the issuer of a security to change the terms of the security agreement.  
Income for which payment has been received by the business but which has not yet been earned.


For example, a bond issuer might ask bondholders if the terms of a LIBOR-linked bond indenture may be changed, in order to transition to another appropriate benchmark rate.


Consent solicitations are necessary, because security agreements need mutual consent in order for them to be changed.
<span style="color:#4B0082">'''''Example: Five year licence'''''</span>


A customer pays in advance for a five year licence.


:<span style="color:#4B0082">'''''Transitioning LIBOR-linked bonds'''''</span>
We would record the revenue in our income statement spread over the full five years.


:"The key message for issuers is that they should now be actively transitioning their outstanding LIBOR-linked bonds through consent solicitations or other methods, and clearly communicating their plans to their investors, and in a timely manner.
At the end of the first year 4/5 of the total received from the customer would be Deferred income.


:Investment managers are aware that some issuers have been reluctant to launch proposals for fear of not gathering sufficient support, and would like to make it clear that investors are fully supportive of the transition process.  
We have a liability / obligation to provide the further four years of service, for which we have been paid in advance.


:To this end, the IA's report also includes a list of the key features LIBOR-transition consent solicitations should have in order to maximise the chance of success - these features include strong engagement, awareness of existing regulator and industry body announcements and recommendations, and a clear focus on LIBOR transition as opposed to other matters."


:''Hugo Gordon, Policy Specialist, Capital Markets, from The Investment Association - ACT guest blog - 15 July 2021''
Deferred income is recorded as a credit balance in the balance sheet. 


(The related accounting entries being DEBIT Cash and CREDIT Deferred income.)


==See also==
 
*[[Benchmark]]
Deferred income is a liability of the reporting entity to provide the services that the customer has already paid for.
*[[Bond]]
 
*[[Bondholder]]
 
*[[Bond indenture]]
For reporting presentation purposes it is often aggregated with Accruals as 'Accruals and deferred income'.
*[[LIBOR]]
 
*[[Risk-free rates]]
 
*[[Security]]
== See also ==
*[[The Investment Association]] (IA)
* [[Accrual]]
*[[Tough legacy]]
* [[Accruals accounting]]
*[[Transition]]
* [[Accrued income]]
* [[Balance sheet]]
* [[Credit]]
* [[Debit]]
* [[Financial reporting]]
* [[Liabilities]]
* [[Prepayment]]
* [[Reporting entity]]
* [[Revenue]]


[[Category:Accounting,_tax_and_regulation]]
[[Category:Accounting,_tax_and_regulation]]
[[Category:The_business_context]]
[[Category:Investment]]
[[Category:Long_term_funding]]
[[Category:Identify_and_assess_risks]]
[[Category:Manage_risks]]
[[Category:Financial_products_and_markets]]

Revision as of 15:48, 9 September 2020

Accounting.

Income for which payment has been received by the business but which has not yet been earned.


Example: Five year licence

A customer pays in advance for a five year licence.

We would record the revenue in our income statement spread over the full five years.

At the end of the first year 4/5 of the total received from the customer would be Deferred income.

We have a liability / obligation to provide the further four years of service, for which we have been paid in advance.


Deferred income is recorded as a credit balance in the balance sheet.

(The related accounting entries being DEBIT Cash and CREDIT Deferred income.)


Deferred income is a liability of the reporting entity to provide the services that the customer has already paid for.


For reporting presentation purposes it is often aggregated with Accruals as 'Accruals and deferred income'.


See also

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