LEASE ACCOUNTING FOR ORACLE ERP USERS

Transcription

1 ENTERPRISE LEASE ACCOUNTING LEASE ACCOUNTING FOR ORACLE ERP USERS MICHAEL KEELER CEO and Founder THE LEADER IN ENTERPRISE LEASE ACCOUNTING SOFTWARE ALEX KLEIN Lease Accounting Solution Consultant

2 ENTERPRISE LEASE ACCOUNTING WHAT IS LEASE ACCOUNTING? ENTERPRISE LEASE ACCOUNTING Comply with the new lease accounting standards while achieving savings on sourcing and management of your portfolio. 2

3 New FASB ASC 842 Standard Published in February 2016 Lessee will be required to recognize assets and liabilities for leases with lease terms of more than 12 months Classification as a finance or operating lease Both types of leases to be recognized on the balance sheet Qualitative and quantitative disclosures required for amount, timing and uncertainty of cash flows arising from leases Page 3

4 Time-box is Shrinking for Controllerships Time-box: Lease Accounting Project SOX 404 Lockdown Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q Transition Deadline Page 4

5 Enterprise Lease Accounting Sarbanes-Oxley Audit Financial Reporting Processes Real Estate Leases Equipment Leases Embedded Leases Controls Systems Balance Sheet Income Statement Substantive Audit New Lease Quarter End Year End Lease versus Buy Invoice Approval Lease Accounting Lease Administration Qualitative Disclosures Page 5

6 Accurate Calculations Real Estate Leases Auto-Lease Classification General Ledger Configuration Global Lease Accounting Engine Equipment Leases Lease Accounting Sub-Ledger Responsibility & Management Accounting Financial Disclosures & Reporting Page 6

7 Accounting Classification Analysis ASC 840 IAS 17 ASC 842 IFRS 16 Current Standard US GAAP Current Standard International New Standard US GAAP New Standard International Classification Criteria Classification Criteria Classification Criteria Classification Criteria Short Term Lease Non-Cancellable 90% of Lease Payments 75% of Economic Life Ownership Transfer Bargain Purchase Short Term Lease Non-Cancellable PV of Lease Payments Economic Life Ownership Transfer Bargain Purchase Specialized Assets Short Term Lease Non-Cancellable PV of Lease Payments Economic Life Ownership Transfer Likely Purchase Specialized Assets Short Term Lease Non-Cancellable Ownership Transfer Interrelated Assets Small Value Automatically generates recommended classification with option to override Page 7

8 Enterprise Lease Accounting Project Scope Data Collection Process transformation required Accounting Policy System Configuration Impact Assessment Change Management Page 8

9 Why Three Processes? Journal Entries Calculations Data Business Processes and Controls Asset and Payment Dynamics Transaction Lifecycle Unique to lease type Real Estate Equipment Embedded Leases Stakeholders Motivations & Objectives Culture Page 9

10 Transition Accounting: Top Audit Risk Date of Initial Application Effective Date Ex: 1/1/2017 Ex: 1/1/2019 LEASE ACCOUNTING SUB-LEDGERS D DOIA 842E Effective Date Primary Journal Entries uploaded to GL Re-Measure Transition Entries True-Up What if Analysis Effective Adjusting Entries Primary Journal Entries uploaded to GL May Continue to support Frozen GAAP requirements Continues to Support Comparative Reporting Disclosures Re-Measure Changes in Estimates Applied 840 Entries 842 Entries 842D Entries Page 10

11 Auditor Checklist: Need Asset Level Controls Assertions Completeness and Accuracy Existence or Occurrence Rights and Obligations Valuation or Allocation Presentation and Disclosure LeaseAccelerator Control Features Automated Data Capture and Validation Straight-Through Processing Roll-Forward Reporting Deal History Document and Communications History Asset Attestations Detail Lease Terms Date Tracking (i.e., commencement, acceptance, booking, funding, original end, effective end) Policy Settings (i.e., IBR, Reasonably Certain Holding Period, Reasonably Certain EOT Option, Classification Test Thresholds) Asset Based Rule-Based Accounting Engine (ROU Asset Adjustments, Modifications) Embedded PV Calculations (Frequency, Adv/Arr) GL Configuration and Account Setup Detail Classification Testing Authorization Audit Trail, Access Level, Scope of Access, and Segregation of Duties Workflow Page 11

12 Asset level vs. Contract level Contract-Level Lease Accounting Lease Contract Debits and Credits for each Lease Contract Asset-Level Lease Accounting Leased Asset Leased Asset Leased Asset Debits and Credits for each Leased Asset Page 12

13 Asset level vs. Contract level Contract-Level Lease Accounting Lease Contract AGGREGATION ALLOCATION Leased Asset Leased Asset Leased Asset Asset-Level Lease Accounting Page 13

14 What is Asset-Based Lease Accounting? FINANCE AND TAX ACCOUNTING AND COMPLIANCE Mid-Term Events Location Changes Tax Timing Differences Reassessments Modifications Usage Parameterization Non-Lease Components Penalties Residual Guarantee Purchase Option Term Partial End of Term Events MANAGEMENT ACCOUNTING AND LEASE COMPLIANCE Super-Asset Aggregation Cost Center Allocation Project Allocation Mergers & Acquisition Allocation Reorganization Allocation DRIVING SAVINGS Negotiating Equipment Buyouts Negotiating Equipment Renewals Negotiating Equipment Returns Aggregated Spend Page 14

15 Every Asset is a Lease At Inception: Varying Lives At End of Term: Partial Events 48-Month Term Return Renew Arlington Arlington Fort Worth Fort Worth 60-Month Term Return Buyout Renew Page 15

16 Varying Start Dates for Equipment Leases Assets 1-8 Assets 9-10 August September October November December January AMORTIZATION SCHEDULE PAYMENT SCHEDULE Assets Available Assets Available Lease Start Date DEPRECIATION SCHEDULE Assets In-Service Assets In-Service Page 16

17 Decisions and Events Across the Lifecycle Page 17

18 Modifications and Reassessments Change in Circumstances Leasehold Improvements Index or Rate Payments Contractual Event Lease Payment Contingency Exercise an Option Residual Value Guarantee Asset Changes LEASE ACCOUNTING Business Decision Page 18

19 Audit Trail for Each Lease Asset Request Form submitted from APAC IT Organization Treasury signed MLA and returned to lessor Certificate of Acceptance created and accepted Lease versus Buy analysis completed and stored Lease schedule details entered into systems New lease booked into the system Indicative lease classification ASC 840 completed Schedule and MLA document attached to lease in system Lease classification for ASC 840 & 842 (and/or IFRS 16 & IAS 17) Master Lease Agreement and schedule received Asset Manifest details for equipment received entered into system First rent payment scheduled Page 19

20 ENTERPRISE LEASE ACCOUNTING ENTERPRISE LEASE ACCOUNTING SOFTWARE ENTERPRISE LEASE ACCOUNTING Comply with the new lease accounting standards while achieving savings on sourcing and management of your portfolio. 20

21 Some Companies Have No Systems Today LEASE ADMINISTRATION Real Estate LEASE ACCOUNTING Real Estate ERP APPLICATIONS General Ledger Accounts Payable Equipment Equipment General Ledger Accounts Payable Page 21

22 What Most Companies Have Today LEASE ADMINISTRATION Real Estate LEASE ACCOUNTING Real Estate ERP APPLICATIONS General Ledger Accounts Payable Equipment Equipment General Ledger Accounts Payable Page 22

23 LeaseAccelerator A Complete Solution LEASE ADMINISTRATION Real Estate LEASE ACCOUNTING Real Estate ERP APPLICATIONS General Ledger Accounts Payable Equipment Equipment General Ledger Accounts Payable Page 23

24 Or LeaseAccelerator Can Fill the Gaps LEASE ADMINISTRATION Real Estate LEASE ACCOUNTING Real Estate ERP APPLICATIONS General Ledger Accounts Payable Equipment Equipment General Ledger Accounts Payable Page 24

25 Enterprise Lease Accounting Independent Lessor Commercial Bank Vendor Captive Real Estate Management Fleet Management IT Asset Management External Systems Equipment Lease Sourcing Lease vs Buy Analysis RFP Generation Competitive Bidding Proposal Ranking Data Abstraction Equipment Lease Management Moves, Adds and Changes End of Term Workflows Evergreen Reporting Real Estate Lease Administration Lease Data & Documents Critical Date Management Accounts Payable Enterprise Lease Accounting Book Accounting Tax Accounting Cash Flow Management Financial Planning Invoice Workflow Procurement Sourcing Contract Management Fixed Asset General Ledger Accounts Payable Page 25

26 Straight Through Processing Independent Lessor Commercial Bank Vendor Captive the global lessor network Real Estate Management Fleet Management IT Asset Management RFPs & Bids Lease Data & Documents Asset Data & Warranty Moves, Adds, Changes End of Term Swaps & Upgrades Moves, Adds, Changes End of Term: Returns, Buyouts, Renewals ENTERPRISE LEASE SOURCING Lease vs Buy Analysis Leasing RFP Generation Competitive Bidding on Global Lessor Network Proposal Ranking and Ranking Data and Document Collection ENTERPRISE LEASE MANAGEMENT Asset Management Mid-Term Buyouts and Returns End of Term Buyouts, Returns, Renewals Evergreen Reporting Stakeholder Scorecard ENTERPRISE LEASE ACCOUNTING Global Lease Accounting Engine Lease Accounting Sub-Ledger New and Current Lease Standards Book Accounting and Tax Accounting Cash Flow Management Purchase Request Purchase Order Cost Center Governance Equipment Description Model Number Number of Units Equipment Cost Hyperlinks to MLAs, Schedules, Renewals Asset Debits & Credits Journal Entries Amounts Due Allocations Corporate Hierarchy GL Codes Cash Disbursement Payment Details & Instructions What was Paid iprocurement Procurement Sourcing Contract Management Fixed Asset General Ledger Accounts Payable Page 26

27 Lease Accounting Software Page 27

28 THANK YOU QUESTIONS? LeaseAccelerator LeaseAccelerator