Implementing the New Lease Accounting Standard Prepared by: Chris Schmidt, Deloitte Consulting Stephen Shim, Deloitte Consulting Your JDE Solution Roadmap Session ID#: 2017JDE-100460 @ DeloitteOracle #DeloitteOracle #JDEINFOCUS
Implementing the New Lease Accounting Standard
Prepared by:
Chris Schmidt, Deloitte Consulting
Stephen Shim, Deloitte Consulting
Your JDE Solution Roadmap
Session ID#: 2017JDE-100460
@ DeloitteOracle
#DeloitteOracle #JDEINFOCUS
Introductions
PrincipalDeloitte Consulting LLP
TechnologyOracle | JDEdwards
+1.305.372.3105 (office)+1.303.809.9952 (mobile)[email protected]
Chris Schmidt
Senior ManagerDeloitte Consulting LLP
TechnologyOracle | JDEdwards
+1.303.312.4058 (office)+1.303.204.3374 (mobile)[email protected]
Stephen Shim
Discussion Topics
■ Lease Accounting Standard Background■ JDE Lease Module■ Demo■ Q&A
Lease Accounting Standard
Background
ASC 842: Timeline and TransitionNew 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
presentedASC 842
Effective Date
First annual reporting date
ASC 842 issued Feb 25, 2016
Comparative periods to be restated under ASC 842
First quarterly reporting date
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*Assuming early adoption is not elected
IFRS 16: Timeline and TransitionNew lease standard issued on January 13 2016; first reporting FY2019*
IFRS 16 issues Jan 13, 2016
Beginning of earliest comparative period
presentedASC 842 effective
date
First annual reporting date
Comparative period presented under full retrospective approach
First quarterly reporting date
*IFRS 16 permits early application only after adoption of IFRS 15 Revenue from Contracts with Customers
Under IFRS Lessee has two options for adoption:1. Full retrospective approach (IAS 8) or2. 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
retro
spec
tive
Mod
ified
retro
spec
tive
appr
oach
The opening cumulative effects of applying IFRS 16 should be adjusted in opening equity
without restatement
The Big PictureMost 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 requiredPotential impact on debt covenants
Key takeaways – Refer to Deloitte Heads Up for details
Operational ChallengesKey challenges associated with the proposed lease standard
The data being collected may be in a variety of formats, thus increasing the complexity and cost of organizing the data.
3 Timeline 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.
2 IT 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.
1 Data Challenges: High volume of lease agreements across multiple decentralized locations, in different business and operating units.
High volume of data fields
Multiple languages / contracting practices
Data housed in
various systems
Agreements aren’t
electronic
Multiple currencies
Number of new data elements
Lack of resources
New analytics or
metrics needs
Information isn’t all in
one agreement
SOX regulations
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
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).
1 Lease Solution: Solution to handle the new lessee accounting requirements under ASC 842 and IFRS 16.
Monthly Accounting
Entries
Remeasure-mentNPV
Schedule
Payment Processing
Minimum Payment schedule
Lease master
Lease Options
Lease Liability
ROU Asset
Reporting
Guiding Design Principles
Develop solution to meet the core accounting requirements (accounting entries, payments, and reporting)
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 within the Deloitte designated system code (Q59)
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
Guaranteed Min. Payment
Schedule(FQ5913)
Fixed Assets
Review & Approve Lease Agreement –
Status 30
General Ledger(F0911)
FA Balance(F1202)General Ledger
(F0911)
A/P Matching Doc
Detail(F0414)
A/P Matching Doc
(F0413)
End of Lease?
Close LeaseStatus 99
Yes
Approved Lease Agreement –
Status 40
Interactive Accounting Entry
Creation (auto update status to 50)
Batch Accounting Entry Creation (auto update status to 50)
Or
Lease Active – Status 50
Accounting Entry Creation
1. Create JE2. Lease Ledger
Update
Enter/Match Vouchers & Lease
Row Exit
Process Manual/Automatic Payment
Enter Lease Information –
Status 10
Batch Payment Update (RQ590411)
AP Voucher (F0411)
Lease Voucher Tag (FQ590411)
Lease Ledger(FQ5911)
Lease Voucher Tag (FQ590411)
Lease Interest Accrual & Monthly
Lease Expense (RQ59XX)
No
Mo. LeaseAccgt.
Create NPV & Amort. Schedule –
Status 20
Lease Master Status History
(FQ5995)
Lease Worksheet(FQ5912)
Lease Master(FQ5901)
Lease Option(FQ5904)
Present Value(FQ5914)
Fixed Asset Master(F1201)
Lease Balance(FQ5902)
Post Lease Ledger to Lease Balance
(RQ59801)Remeasurement?
Yes
No
Remeasurement
Direct Cost(FQ5905)
Create ROU Acct.
JDE Lease Module
Demo
Deloitte JDE Lease Solution
Deloitte designated system code Q59
Deloitte Lease Solution
Batch Processors and End-User Reports
Transactional Financial
• Lease Financial Position• Lease Expense Summary• Lease Payments• Lease Master Detail• Five Year Lease
Disclosure• Lease Cost Detail
• Amortization and Lease Worksheet Batch Report
• ROU Asset Accounting Generation
• Monthly Lease Accounting Interest Accrual
• Batch Payment Update
Integrity
• Lease Liability to GL• ROU Asset to GL• Lease Balance Integrity• Rebuild Lease Balances
The following is a list of reports built as part of JDE Lease Solution:
Q&A
Chris SchmidtPrincipalDeloitte Consulting LLP
Stephen ShimSenior ManagerDeloitte Consulting LLP
Please complete the session evaluationWe appreciate your feedback and insightSession ID# 2017JDE-100460
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