Question

many loan agreements have financial covenants that rely on: multiple choice floating gaap. fixed gaap. flexible gaap. regulatory accounting procedures (rap).

Answer 1

Many loan agreements have financial covenants that rely on floating GAAP .

What is meant by floating GAAP ?

Floating GAAP" refers to accounting for periodic changes in GAAP.

The interested parties may disagree on how the changes to the accounting practices should be reflected or how they impact the various defined terms used in the facility agreement, even when the terms of the facility agreement under frozen GAAP specify the procedure to address such changes (or are based on floating GAAP). Even on how the various components of operating leases (such as the rental, interest, and other payments) should now be handled, the parties may dispute.

An agreement wherein the parties concur that financial reporting and the computation of financial covenants under a loan agreement shall be based on the GAAP that was in effect on a certain date is referred to as "frozen GAAP."

To learn more about floating GAAP checkout the link below :

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