The Leases are coming… to your balance sheet December 11, 2017 Marybeth Shamrock Accounting Change Services Leader and Advisory Leasing Leader KPMG LLP Shane Hendricks KPMG Leasing Tool Implementation Leader KPMG LLP Shari Mager Partner, Accounting Advisory Services KPMG LLP
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The Leases are coming… to your balance sheet...The Leases are coming… to your balance sheet December 11, 2017 Marybeth Shamrock Accounting Change Services Leader and Advisory Leasing
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The Leases are coming… to your balance sheet
December 11, 2017
Marybeth ShamrockAccounting Change Services Leader and Advisory Leasing LeaderKPMG LLP
Public business entities, certain not-for-profit entities, and certain employee benefit plans
— Interim and annual periods in fiscal years beginning after December 15, 2018
All other entities — Annual periods in fiscal years beginning after December 15, 2019, and interim periods in fiscal years beginning one year later
Early Adoption — Early adoption permitted for all entities at any time after issuance
Date of initial application — The first day of the earliest comparative period presented in the first annual financial statements post-effective date
Transition Relief — The board has proposed an amendment to give all companies the option to use the effective date of the new leases standard as their date of initial application in transition
— Companies that elect this transition option would not have to adjust their comparative financial statements for effects of the new standard or make the new required lease disclosures for periods before the effective date
Accounting and Reporting Impacts— Increased management judgment — Potential for increased level of effort/reporting volatility— Potential dual reporting (U.S. GAAP and IFRS) — New ROU assets can be impaired— New book-tax differences — New accounting policies and procedures— Significant new disclosure requirements— Opening balance sheet and comparative
periods— Transition & ongoing external audit
effort
Systems & Processes Impacts— Existing lease systems functionality shortfalls— Need complete lease inventory— Capturing salient lease terms in a database— Expanded data needs may necessitate a need for
forecasting and other systems— Increased management judgment — Changes to process documentation and
Expected level of impact of new leases standardQ. What level of impact do you expect in each of the following areas as a result of the new leases standard? Rate each on a scale of 1 to 5 (1 = no impact, 5 = significant impact):
Progress on implementation to the new leases standardQ. Please indicate the progress your organization has made against each of the following implementation activities related to the new leases standard:
32%
66%
59%
74%
67%
43%
61%
55%
35%
51%
23%
23%
3%
32%
33%
21%
28%
52%
23%
35%
51%
23%
47%
25%
2%
5%
2%
4%
4%
5%
6%
13%
16%
28%
49%
64%
<1%
3%
3%
1%
1%
11%
3%
1%
10%
2%
4%
0% 20% 40% 60% 80% 100%
Other
Complete implementation
Conduct training
Analyze tax impacts
Calculate the transition impact
Gather and validate data
Design software or process solution
Develop system or process requirements
Perform accounting assessment
Select lease accounting software
Perform lease inventory
Establish program management team
No progress Some progress Activity completed Not applicable
Challenges in implementing the new leases standardQ. What challenges are you facing related to the implementation of the new leases standard that you did not anticipate?*
0%
22%
11%
33%
11%
44%
11%
44%
78%
11%
19%
22%
24%
33%
35%
41%
48%
44%
10%
19%
21%
25%
30%
37%
37%
48%
49%
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Other
Defining a lease
Reporting on the proper accounting treatment and disclosures
Estimating operating costs or service components in leases toexclude from capitalization
Establishing assumptions and inputs such as discount rate andlikelihood of renewal
Locating a lease
Abstracting and entering leases into a leasing system
Selecting and implementing an adequate leasing system
Identifying embedded leases
Total (n = 63) Public (n = 54) Private (n = 9*)
* Among those who selected “Yes, there are surprises that we did not anticipate” when asked about unanticipated challenges related to the leases implementation effort
Other includes:
— Identifying all leases
— Joint operations effect on leases and disclosures
Expected time to implement changes to existing system or new software solutionQ. The total amount of time to implement changes to existing system or new software solution for the new leases standard is expected to be:
After identifying a project team, determine the best approach to achieve your objectives...
Advantages:— Supports consistency of data capture— Controlled, easy-to-oversee— Establish center of excellence— Streamline timing of data Disadvantages:— May not be a viable go-forward model— Challenges presented with leases in other languages— Requires full-time project team
Centralized
Advantages:— Establishes a viable go-forward process— Easier for individual BU reconciliations/processing— Eliminates language challenges— Obtain greater buy-in across the organizationDisadvantages:— Requires extensive training and communication— Difficult to ensure consistency of data capture— Prolonged close process
Decentralized
Considerations— Personnel & other
resources— Timeline — Nature of operations— Risks— Current location/state
Questions to consider when selecting a lease accounting system
Does the application fully support foreign currency needs?
Does it capture items such as variable lease payments, short term leases, the weighted average remaining lease term, or weighted average discount rate to fully support the disclosure requirements?
Does it support tracking and recording impairments of ROU Assets? Reassessments? Modifications?
Will the application or its sponsors be able to provide support for ongoing updates as additional interpretive guidance and best practices emerge over the next few years?
Does the application have features that support effective project management and oversight of the accounting change project, which will entail the management of thousands of leases?
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