TheCorporateCounsel.net

I’m beginning to think that Leap Day isn’t all fun & games. Not only do we need to consider its impact on forward incorporation by reference, this WSJ article reminds us that we also may need to give extra thought to the presentation of financial results for this quarter. The article calls out these things to watch:

Employee benefits: Companies need to make sure payroll benefits and certain employee pay reflect the extra day. Banking firm UMB Financial projects that its first-quarter salary and benefits expense will increase with the leap-year day, CFO Ram Shankar said on a Jan. 31 earnings call. Businesses with a large base of hourly workers could see a jump in expenses from the previous year.

Depreciation and amortization: Businesses will want to make sure they are booking the correct amount of depreciation and amortization for 29 days instead of 28, said Steve Hills, who heads up the accounting and reporting practice at Stout Risius Ross, an advisory firm. For some companies, that may be a manual adjustment, while at others it may be automated, he said.

Comparable metrics: If companies calculate key data such as same-store sales on a monthly basis and an extra day is material, investors could find it difficult to compare year-over-year sales and need to consider that day, said Olga Usvyatsky, an accounting consultant.

Interest rates: Certain industries will see greater effects from the added day. Banks and other lenders have to calculate interest rates on a daily basis for 366 days, not 365.

Or…just ignore it: Retailers have to examine the extra day of sales to see if it is material enough to warrant a footnote saying 2024 might not be comparable to the previous year. When calculating comparable metrics of a leap year versus a non-leap—a percentage change in sales, for instance—companies can omit the extra day in its comparisons and will generally explain it to investors separately if it is deemed material.

The article goes on to say that companies rarely mention the effect of Leap Day in their financial reports, but companies, auditors, and lawyers must analyze the impact regardless. Don’t begrudge Leap Day, though. This extra effort is worth it, since it means that our holidays stay in the seasons where they belong.

– Liz Dunshee