WHO TO CONTACT For Additional Registrations: -Call Strafford Customer Service 1-800-926-7926 x10 (or 404-881-1141 x10) For Assistance During the Program: -On the web, use the chat box at the bottom left of the screen If you get disconnected during the program, you can simply log in using your original instructions and PIN. IMPORTANT INFORMATION This program is approved for 2 CPE credit hours. To earn credit you must: • Participate in the program on your own computer connection (no sharing) – if you need to register additional people, please call customer service at 1-800-926-7926 x10 (or 404-881-1141 x10). Strafford accepts American Express, Visa, MasterCard, Discover. • Listen on-line via your computer speakers. • Respond to five prompts during the program plus a single verification code. You will have to write down only the final verification code on the attestation form, which will be emailed to registered attendees. • To earn full credit, you must remain connected for the entire program. Navigating the New Lease Accounting Standards for Audit Advisers Preparing Clients for the Transition to the Joint Project Lease Reporting TUESDAY, JANUARY 12, 2016, 1:00-2:50 pm Eastern
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WHO TO CONTACT
For Additional Registrations:
-Call Strafford Customer Service 1-800-926-7926 x10 (or 404-881-1141 x10)
For Assistance During the Program:
-On the web, use the chat box at the bottom left of the screen
If you get disconnected during the program, you can simply log in using your original instructions and PIN.
IMPORTANT INFORMATION
This program is approved for 2 CPE credit hours. To earn credit you must:
• Participate in the program on your own computer connection (no sharing) – if you need to register
additional people, please call customer service at 1-800-926-7926 x10 (or 404-881-1141 x10). Strafford
accepts American Express, Visa, MasterCard, Discover.
• Listen on-line via your computer speakers.
• Respond to five prompts during the program plus a single verification code. You will have to write down
only the final verification code on the attestation form, which will be emailed to registered attendees.
• To earn full credit, you must remain connected for the entire program.
Navigating the New Lease Accounting
Standards for Audit Advisers Preparing Clients for the Transition to the Joint Project Lease Reporting
TUESDAY, JANUARY 12, 2016, 1:00-2:50 pm Eastern
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Agenda Evaluating and responding to risks of material misstatement related to lease recognition, measurement and presentation
Leases - Evaluating and responding to risks
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Relevant Objectives • Existence • Completeness • Valuation • Accuracy • Cutoff • Rights and Obligations • Disclosure • Special considerations
Leases - Evaluating and responding to risks
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Relevant Objectives • Existence of recorded leases
o Obtain and extract contract terms o Consider confirmation No side agreements Any amendments, extensions, etc Clarification of vague matters relevant to
accounting
Leases - Evaluating and responding to risks
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Relevant Objectives • Completeness
o Inquire, and believe but verify o Comparison of observation of property and
equipment to list(s) of owned property and equipment
o Review expense accounts likely to include leased items for recurring level payments
o Review legal filings in local jurisdiction(s)
Leases - Evaluating and responding to risks
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Relevant Objectives • Valuation and accuracy
o Term Non-cancellable period Renewals “Significant economic incentive” judgments “Reasonably certain” criteria is a “high” standard
o Amount Payments
• Variable payments • Contingent payments
Discount rate • Implicit in lease vs entity incremental rate vs risk-
free rate
Leases - Evaluating and responding to risks
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Relevant Objectives • Valuation and accuracy (continued)
o Classification as A or B lease “A” leases are personal property
• Separately recognize amortization and interest General ledger accounts should separate
“B” leases are land and buildings (or part of building) • Recognize single lease cost
General ledger accounts will still have to be separate because of cash flow and disclosures
o Lease modifications Consider changes in payment rates, review of
correspondence files, etc • Accounting department may not know about
modifications
Leases - Evaluating and responding to risks
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Relevant Objectives • Cutoff
o Subsequent events should consider effective date of new leases Consider disclosure of material new leases
o Review of new leases for prior year effective dates Restatement issue
Leases - Evaluating and responding to risks
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Relevant Objectives • Rights and Obligations
o See also Existence and Accuracy o The amount of the “Obligation” establishes the
amount of the “Right” o Extract agreements for disclosure
Leases - Evaluating and responding to risks
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Relevant Objectives • Disclosure
o Use a GREAT disclosure checklist Set up a PBC template that captures all the
information required to make the disclosures o Disclosure of undiscounted maturities will require
spreadsheets o Disclosure of service elements may be contractual or
general practice Also requires disclosure of future commitments
for services
Leases - Evaluating and responding to risks
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Relevant Objectives • Special considerations
o Related party leases No carve-out or differential measurement or
disclosure o Materiality Consider user needs Is information “decision useful”
o EBIDAT Key measure for creditors Consider disclosures that facilitate users
Preparing Your Clients for the New Lease Standard • Identify users of the financial statements
o Investors, banks, creditors o Consider meeting with users to discuss the new
Standard • Identify what’s important to users
o Balance sheet o Income statement o Cash flow/EBIDAT o Disclosure vs. measurement Especially informal related party leases
o GAAP departure effect
Leases – Preparing your clients
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Preparing Your Clients for the New Lease Standard • Income tax considerations
o Possible change in accounting method o Lease market terms will change before effective date
to meet demand, which may trigger different tax effects
• Compensation considerations o Bonuses, retirement plan contributions, etc
• New leases before effective date o Terms can be altered in the context of market and
competitive considerations to control impact on financial statements
Leases – Preparing your clients
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Preparing Your Clients for the New Lease Standard • Loan covenants
o Existing loans that mature beyond effective date Changes on effective date could blow loan
covenant compliance Recognition of additional liabilities could
adversely affect lending relationship o Loan renewals before effective dates Include provisions regarding effects of the
application of new accounting standards not affecting loan covenant compliance
Leases – Preparing your clients
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Preparing Your Clients for the New Lease Standard • Educate clients regarding “Expecting” vs. “Knowing”
o Lease terms o Interest rate implicit in the lease o Related party leases especially
• Determine the need for new general ledger accounts o Lease assets in types and classes o Lease liabilities current and long term o Income statement amortization accounts o Cash flow break-outs o Disclosures too
Leases – Preparing your clients
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Preparing Your Clients for the New Lease Standard • Discuss accounting assistance that may be provided
o Estimates o Calculations o Amortization tables
• Pro forma financial statements o Model the effects of new lease standard on the
client’s financial statements o Consider disclosure of “pending accounting
pronouncements” in current financial statements
Leases – Preparing your clients
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Preparing Your Clients for the New Lease Standard • In current financial statements, include sufficient
information about leases so that when the information migrates to the balance sheet, etc the users are not surprised o Lease periods and renewal provisions and
expectations o Lease rates and future expectations