ACCOUNTING POLICIES

3 Months Ended

Sep. 30, 2020

RECENT ACCOUNTING PRONOUNCEMENTS

Accounting pronouncements adopted

ASC Topic 326 - Credit Losses

On July 1, 2020, we adopted Topic 326, Financial Instruments-Credit Losses, which was primarily introduced under Accounting Standards Update (“ASU”) No. 2016-13, “Financial Instruments – Measurement of Credit Losses on Financial Instruments”. Topic 326 introduces a new credit loss impairment methodology for financial assets measured at amortized cost, requiring recognition of the full lifetime expected credit losses upon initial recognition of the financial asset, replacing current GAAP, which generally requires that a loss be incurred before it is recognized. The expected credit loss model is based on historical experience, current conditions, and reasonable and supportable economic forecasts of collectability.

We adopted Topic 326 using the modified retrospective approach through a cumulative-effect adjustment to retained earnings on July 1, 2020. The adoption impacted the calculation of our allowance for doubtful accounts on accounts receivables and our allowance for nonperforming finance receivables.

We estimate our allowances using an aging analysis of the receivables balances, primarily based on historical loss experience, as there have been no significant changes in the mix or risk characteristics of the receivable revenue streams used to calculate

historical loss rates. We also take into consideration that receivables for monthly service fees that are collected as part of the flow of funds from our transaction processing service have a lower risk profile than receivables for equipment and service fees billed under the Company’s standard payment terms of 30 to 60 days from invoice issuance, and adjust our aging analysis to incorporate those risk assessments. Current conditions are analyzed at each measurement date as we reassess whether our receivables continue to exhibit similar risk characteristics as the prior measurement date, and determine if the reserve calculation needs to be adjusted for new developments, such as a customer’s inability to meet its financial obligations. Lastly, we also factor reasonable and supportable economic expectations into our allowance estimate for the asset’s entire expected life, which is generally less than one year for accounts receivable and five years for finance receivables.

The adoption of this pronouncement resulted in the recognition of a $0.8 million decrease in the allowance for doubtful accounts for accounts receivable, mainly related to subsequent favorable settlements of customer balances that were considered in the expected credit loss calculation, and a $0.4 million increase in the allowance for nonperforming finance receivables on our opening balance sheet as of July 1, 2020, with a corresponding net increase of $0.3 million in retained earnings.

The following table represents a rollforward of the allowance for doubtful accounts for accounts receivable for the three months ending September 30, 2020:


	Three months ended September 30,
($ in thousands)	2020

Beginning balance, prior to adopting ASC 326	$	7,676
Impact of ASC 326	(757)
Provision for credit losses	394
Ending balance	$	7,313

For details on the adoption of Topic 326 relating to Finance Receivables, please refer to Note 5 - Finance Receivables, including the Company’s rollforward of the allowance for nonperforming finance receivables.

ASU 2018-15 - Intangibles—Goodwill and Other (Topic 350): Internal-Use Software

In August 2018, the FASB issued ASU No. 2018-15, “Intangibles—Goodwill and Other (Topic 350): Internal-Use Software.” This standard aligns the requirements for capitalizing implementation costs incurred in a cloud computing arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The adoption of this ASU on July 1, 2020 did not have a material impact on our condensed consolidated financial statements.

Accounting pronouncements to be adopted

The Company is evaluating whether the effects of the following recent accounting pronouncements, or any other recently issued but not yet effective accounting standards, will have a material effect on the Company’s condensed consolidated financial position, results of operations or cash flows.

ASU 2019-12 - Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes

In December 2019, the FASB issued ASU No. 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes.” ASU 2019-12 is intended to simplify accounting for income taxes by removing certain exceptions to the general principles in Topic 740 and amends existing guidance to improve consistent application. ASU 2019-12 is effective for fiscal years beginning after December 15, 2020 and interim periods within those fiscal years. The Company does not expect the changes to have a material impact on its financial statements.

ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting

In March 2020, the FASB issued ASU No. 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” This standard provides practical expedients for contract modifications with the transition from reference rates, such as LIBOR, that are expected to be discontinued. This guidance is applicable for the Company's revolving credit facility and secured term facility with JPMorgan Chase Bank, N.A., which uses LIBOR as a reference rate. The provisions of ASU 2020-04 can be applied at any point on a prospective basis through December 31, 2022. If and when the Company modifies its revolving credit facility and secured term facility with JPMorgan Chase Bank, N.A. to

use an alternative reference rate, the application of ASU 2020-04 would allow for the modification to be considered not substantial and be accounted for prospectively by adjusting the effective interest rate in accordance with ASC 470-50.