GLOBAL – Moody’s Investors Service has updated its ratings methods to clarify some of its practices for unfunded pensions.
The ratings agency has issued a report which discusses in the standardised accounting adjustments it uses to assess the financial statements of corporate debt issuers prepared using International Financial Reporting Standards.
It follows a request for comments published in September last year which invited comments from market participants.
It said: “The proposals have now been adopted with some amendments to take into account feedback received during the consultation process.
“These amendments, which are described in this new publication, principally concern operating leases and hybrid securities, but also clarify some of Moody's practices for unfunded pensions.
Moody's says it has long adjusted financial data with a view to improving analytical insight.
"However, as part of our ongoing efforts to further improve the transparency of our rating process, we are now formalising and standardising certain adjustments in order to enhance consistency of our global rating practice among analysts and across countries and industries," said Eric de Bodard, chief credit officer in Moody's European corporate finance group.
The proposed standard adjustments will be applied to companies' balance sheets, income statements and cash flow statements. They address nine areas, beginning with underfunded and unfunded defined benefit pension obligations.
Other areas include: operating leases, capitalised interest, capitalised development costs, interest expense related to discounted long-term liabilities other than debt, hybrid securities, securitisations, consistent measurement of funds from operations and unusual and non-recurring items.
Moody's plans to implement the new standards worldwide over the course of 2006 for all rated issuers reporting under IFRS standards.
"Moody's analysts will continue to be able to make non-standard adjustments to financial statements for other matters to better reflect underlying economics and improve comparability with peer companies," de Bodard added.
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