Implementing the New Lease Accounting Standard Session ID#: 2017JDE-100460 Your JDE Solution Roadmap Prepared by: Chris Schmidt, Deloitte Consulting Stephen Shim, Deloitte Consulting @ DeloitteOracle #DeloitteOracle #JDEINFOCUS
Introductions Chris Schmidt Principal Deloitte Consulting LLP Technology Oracle JDEdwards +1.305.372.3105 (office) +1.303.809.9952 (mobile) chschmidt@deloitte.com Stephen Shim Senior Manager Deloitte Consulting LLP Technology Oracle JDEdwards +1.303.312.4058 (office) +1.303.204.3374 (mobile) kshim@deloitte.com
Discussion Topics Lease Accounting Standard Background JDE Lease Module Demo Q&A
Lease Accounting Standard Background
ASC 842: Timeline and Transition New lease standard issued on February 25 2016; first reporting FY2019* FASB releases new standard for lease accounting that impacted all public companies Beginning of earliest comparative period presented ASC 842 Effective Date First quarterly reporting date First annual reporting date Comparative periods to be restated under ASC 842 ASC 842 issued Feb 25, 2016 *Assuming early adoption is not elected ASC 842 transition considerations: ASC 842 transition provisions differ from IFRS 16 Lessees and lessors are required to use a modified retrospective transition method for existing leases Apply requirements to leases in effect at or after the start of the earliest comparative period Practical expedients available to alleviate certain reassessments for leases entered into prior to the effective date Other ASC 842 provisions (e.g., relating to non-lease components and to modifications) need to be applied during comparative periods
IFRS 16: Timeline and Transition New lease standard issued on January 13 2016; first reporting FY2019* Under IFRS Lessee has two options for adoption: 1. Full retrospective approach (IAS 8) or 2. Modified retrospective approach: do not restate comparative information, but rather book the cumulative effect of applying IFRS 16 as an adjustment to opening equity. Full retrospective IFRS 16 issues Jan 13, 2016 Beginning of earliest comparative period presented Comparative period presented under full retrospective approach ASC 842 effective date First quarterly reporting date First annual reporting date Modified retrospective approach *IFRS 16 permits early application only after adoption of IFRS 15 Revenue from Contracts with Customers The opening cumulative effects of applying IFRS 16 should be adjusted in opening equity without restatement
The Big Picture Most leases on balance sheet for lessees Classification will likely drive expense profile Lessor model largely unchanged Most changes result from alignment with ASC 606 FASB tried to make things easy Classification, reassessment, transition Effective 2019, but don t wait to assess impact Process and systems changes will be required Potential impact on debt covenants Key takeaways Refer to Deloitte Heads Up for details
Operational Challenges Key challenges associated with the proposed lease standard Number of new data elements 1 Data Multiple currencies Challenges: High volume of lease agreements across multiple decentralized locations, in different business and operating units. Data housed in various systems Lack of resources Information isn t all in one agreement New analytics or metrics needs High volume of data fields Agreements aren t electronic Multiple languages / contracting practices SOX regulations 2 IT 3 Timeline systems: Need to store lease data and perform calculations. Consider modifying existing system or moving to new system. Given the long lead times of system initiatives, may need bridge system. for adoption: It can be a challenge to anticipate the data gaps and overcome the data abstraction hurdle. A typical timeline from planning to implementation is 12-18 months. The data being collected may be in a variety of formats, thus increasing the complexity and cost of organizing the data.
Implications and Path Forward Data is king Impact on stakeholders significant Basic requirement: Journal Entries Disclosure Reporting JDE SOLUTION DESIGN PRINCIPLES
JDE Lease Module
New Lease Standard Module 1 Lease Solution: Solution to handle the new lessee accounting requirements under ASC 842 and IFRS 16. Lease master NPV Schedule ROU Asset Monthly Accounting Entries Remeasurement Minimum Payment schedule Lease Options Lease Liability Payment Processing Reporting 2 Integrated Solution: Integrated solution developed as a new module within JDEdwards EnterpriseOne with integration to other relevant modules (general ledger, accounts payable, and fixed assets).
Guiding Design Principles Develop within the Deloitte designated system code (Q59) Limit base code modifications to absolute minimum (Accounts Payable row exit) Leverage standard functionality to handle requirements which meet the intent of the existing functionality (e.g. Fixed Assets, AAIs) Develop solution to meet the core accounting requirements (accounting entries, payments, and reporting) Avoid automation of processes requiring high degree of judgement (e.g. lease classification, remeasurement) Leverage existing system and data integrity approaches (e.g. FA Ledger to GL, GL Detail to GL Balances) Build incremental system and data integrity routines (e.g. Lease Ledger to Lease Balance, Lease Ledger to GL Balance, Lease Voucher Tag to Payment Detail) Provide mechanisms to ease initial catch-up / transition to new standards (e.g. import/export, lease copy) High degree of auditability and traceability of historical transactions (e.g. Lease Status, Lease Ledger, Lease Versions) Build with intent to add incremental future enhancements (e.g. automate minimum payments entry, additional forms edits/rules)
Lease Business Activity Flow Enter Lease Information Status 10 Lease Master (FQ5901) Create NPV & Amort. Schedule Status 20 Lease Option (FQ5904) Fixed Asset Master (F1201) Review & Approve Lease Agreement Status 30 Direct Cost (FQ5905) Approved Lease Agreement Status 40 Or Interactive Accounting Entry Creation (auto update status to 50) Batch Accounting Entry Creation (auto update status to 50) Accounting Entry Creation 1. Create JE 2. Lease Ledger Update Create ROU Acct. Guaranteed Min. Payment Schedule (FQ5913) Lease Master Status History (FQ5995) Present Value (FQ5914) Lease Worksheet (FQ5912) Lease Active Status 50 Close Lease Status 99 Remeasu rement Yes Yes Enter/Match Vouchers & Lease Row Exit Process Manual/ Automatic Payment Batch Payment Update (RQ590411) Fixed Assets Lease Interest Accrual & Monthly Lease Expense (RQ59XX) Post Lease Ledger to Lease Balance (RQ59801) End of Lease? No Remeasurement? AP Voucher (F0411) Lease Voucher Tag (FQ590411) A/P Matching Doc (F0413) A/P Matching Doc Detail (F0414) Lease Ledger (FQ5911) Lease Voucher Tag (FQ590411) General Ledger (F0911) Mo. Lease Accgt. Lease Balance (FQ5902) General Ledger (F0911) FA Balance (F1202) No
JDE Lease Module Demo
Deloitte JDE Lease Solution Deloitte designated system code Q59 Deloitte Lease Solution
Batch Processors and End-User Reports The following is a list of reports built as part of JDE Lease Solution: Transactional Financial Integrity Amortization and Lease Worksheet Batch Report ROU Asset Accounting Generation Monthly Lease Accounting Interest Accrual Batch Payment Update Lease Financial Position Lease Expense Summary Lease Payments Lease Master Detail Five Year Lease Disclosure Lease Cost Detail Lease Liability to GL ROU Asset to GL Lease Balance Integrity Rebuild Lease Balances
Q&A Chris Schmidt Principal Deloitte Consulting LLP chschmidt@deloitte.com Stephen Shim Senior Manager Deloitte Consulting LLP kshim@deloitte.com
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