© 2017 leaseaccelerator inc. page 1 - mapi.net secrets of... · •audit – how will auditors...


Today’s Presenters

Michael KeelerCEO and Founder

[email protected]

Mark Koppersmith VP, Customer Experience

[email protected]

New Lease Accounting Standards• Balance Sheet Impacts• Adoption Curve

Secrets of Success• Audit Considerations• Data Collection • Future State Design• Software and Automation -• Test Planning and Execution• Staffing and Training• Return on Investment

mailto:[email protected]


3www.leaseaccelerator.com

ENTERPRISE LEASE ACCOUNTING

• ASC 842 and IFRS 16 Standards• Balance Sheet Impacts• Adoption Curves

MICHAEL KEELERCEO, LEASEACCELERATOR

LEASEACCOUNTING


The Problem: Lease Accounting Compliance

UnmanagedHighly Decentralized

TransactionsStakeholders

LeasesAssets

Massive Spend

Typical Global 2000 Company$100M to $10B

Leasing Portfolio

Moving On Balance Sheet High Risk of Audit Failure

Processes(SOX)

FinancialStatements

AssetsLiabilities

10-KFootnote

A new accounting standard has changed this, forever

No ControlsNo SystemsNo Processes Significant leakage & losses


New Lease Accounting Standards: $2 Trillion

BEFORE AFTER


ASC 842 Adoption Curves

PrivateCompanies

Jan 2019

Feb2016

PublicCompanies


Secrets to Success with ASC 842

• Audit – How will auditors audit your lease accounting program?

• Data Capture – How will you ensure completeness and accuracy of lease population before and after transition?

• Future State Design – Clarify requirements for your monthly close. How do you want the process to work?

• Automation – Will you invest to automate processes or hire FTEs?

• Testing - There are 100 billion combinations. How will you test the output?

• Training - This is new for everyone. How are you going to train all of your stakeholders (each user group)?

• ROI - Don’t let this be just a cost center. How can you make a compelling business case for leasing?



• Monthly Close Process• Auditor Checklist• Frozen GAAP Considerations


AUDIT CONSIDERATIONS


Enterprise Lease Accounting: Monthly Close

Sarbanes-Oxley Audit

Real Estate Leases

Equipment Leases

Embedded Leases

Substantive AuditFinancialReporting

Income Statement

Balance Sheet

Qualitative Disclosures

SystemsLease Accounting

Lease Administration

Processes

New Lease

Quarter End

Year End

ControlsLease versus Buy

Invoice Approval


Auditor Checklist

Assertions LeaseAccelerator Control Features

Completenessand Accuracy

• Automated Data Capture and Validation• Straight-Through Processing• Roll-Forward Reporting

Existenceor Occurrence

• Deal History• Document and Communications History• Asset Attestations

Rights and Obligations

• Detail Lease Terms• Date Tracking (i.e., commencement, acceptance, booking, funding, original end, effective end)

Valuation or Allocation

• 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)

Presentation and Disclosure

• GL Configuration and Account Setup• Detail Classification Testing

Authorization • Audit Trail, Access Level, Scope of Access, and Segregation of Duties• Workflow


Dual Ledgers and Frozen GAAP

17/840

16/842

LEAS

E AC

CO

UN

TIN

GSU

B-L

EDG

ERS

16E/842

DOIA = EffectiveDate

Ex: 1/1/2019

Transition Adjustment Effective

Adjusting Entries

May Continue to support Frozen Statutory requirementsPrimary Journal Entries uploaded to GL

Primary Journal Entries uploaded to GL

Changes inEstimates Applied

Re-Measure

EffectiveDate

17Entries

16 Entries

Full Retrospective

FROZEN GAAP



• Completeness and Accuracy• Contract and Company Data• Maintaining Data Post Adoption


DATA CAPTURE


Is Your Lease Population Complete?

Real Estate

MaterialHandling

MedicalEquipment

IT & DataCenter

Retail StoreEquipment

LeasingSubledger

Aircraft

Office Furniture

ManufacturingEquipment

Vehicle Fleet


Contract & Asset Data

Residual Value Guarantees

FairMarketValue

LeaseIncentives

Lease Term

Fixed Payments

VariablePayments

EnterpriseLease

Accounting

EconomicLife

PurchaseOptions

CommencementDate

RenewalOptions


Company Data

Cost Centers Entities Locations Departments Projects Business Units

ENTERPRISE LEASEACCOUNTING SOFTWARE

Real Estate Data Center Vehicle Fleet Office Equipment Corporate Aircraft Material Handling Transportation


But the Data is Constantly Changing

NewLease

Rent Change

LeaseholdImprovement

Change toFuture Plans

SubleaseExtension

End of TermRenewal

End of TermBuyout

LEASE DATA COLLECTION



• Day Two Considerations• Key Organizational Stakeholders• Financial Systems Context


FUTURE STATE DESIGN -MONTHLY CLOSE


The Lease Accounting Journey

Start Line

DAYONE

• Future State Design• Data Collection & Cleansing• Software Configuration & Testing• Communications & Training

DAYTWO

• New Leases & End of Term• Modifications & Reassessments• Monthly Close & Quarterly Reports• Substantive & SOX Audit Preparation

DAYTHREE

• Competitive Sourcing of Financing• Lease versus Buy Analysis• End of Term and Evergreen Management• KPIs & Stakeholder Scorecards

1

2

3

Finish Line

YOU AREHERE


Get to the Auditability Starting Line

DAY TWOSTARTS HEREDAY ONE

FINISHLINE


Enterprise Lease Accounting: Stakeholders

FP&A

IT

Procurement

Tax

Treasury

Operations


Decisions and Events Across the Lifecycle


Modifications and Reassessments

LEASEACCOUNTING

Change inCircumstances

ContractualEvent

Exercise anOption

LeaseholdImprovements

AssetChanges

BusinessDecision

Index or RatePayments

Lease PaymentContingency

Residual Value Guarantee


Enterprise Lease Accounting: System Context

REAL ESTATEADMINISTRATION

IT ASSETMANAGEMENT

FLEETMANAGEMENT

CONTRACTMANAGEMENT

PROCUREMENT& SOURCING

GENERALLEDGER

ASSET MANAGEMENT

PROCUREMENT

ACCOUNTSPAYABLE

GENERALLEDGER

ACCOUNTSPAYABLE

ERP APPLICATIONS

LEASE ACCOUNTING SUBLEDGER



• Automating the Monthly Close• Attestation with Stakeholders• Total Cost of Ownership


AUTOMATE THE PROCESS


Lease Accounting and Quarterly Reporting

INTERCOMPANY

LEASEACCOUNTING CLOSING RECONCILIATION EXTERNAL

REPORTING

MONTHLY CLOSE AND QUARTERLY REPORTING PROCESS

ROLL FORWARDREPORTING

GENERAL LEDGERERROR CHECKING

END OF TERMREPORTING

QUANTITATIVEDISCLOSURES

Provides visibility into activities in and around cutoff

Automates upload of debits and credits. Avoids duplicate posts.

All new leases, changes, FX rates, buyouts, renewals, terminations

Push button disclosures for maturity analysis, weighted averages


Two Accounting Models

Contract-LevelLease Accounting

Asset-LevelLease Accounting

Debits and Credits for each Lease

Contract

Debits and Credits for each Leased Asset

Lease Schedule

LeasedAsset

LeasedAsset

LeasedAsset


What is Asset-Based Lease Accounting?

Mid-Term EventsLocation Changes

Tax Timing DifferencesReassessments

ModificationsUsage ParameterizationNon-Lease Components

PenaltiesResidual Guarantee

Purchase OptionTerm

Partial End of Term Events

FINANCE AND TAXACCOUNTING

AND COMPLIANCESuper-Asset AggregationCost Center AllocationProject AllocationMergers & Acquisition AllocationReorganization Allocation

MANAGEMENTACCOUNTING ANDLEASE COMPLIANCE

Negotiating Equipment BuyoutsNegotiating Equipment RenewalsNegotiating Equipment ReturnsAggregated Spend

DRIVINGSAVINGS


Periodic AttestationData Center Logistics Operations Manufacturing Corporate IT

End of Term Plans

PhysicalLocation

AccountingCost Center01

Configurable Business

Rules

Who to Ask?• Asset Owner• Asset Users

When to Ask?• Monthly• Quarterly• Semi-Annually

How Many to Verify?• 100 assets• 500 asset

How Frequently to Remind?• Weekly• Daily

Guaranteed Residual Value

01


Understand the TCO of Each Software Offer

LOW FEATURESOFTWARE

FULL FEATURESOFTWARE

Manual Tasks = More People• Tracking of new leases, changes,

end of term• Interacting with stakeholders• Reconciliation and tie-ups• Upload of journal entries to ERP• Manual controls and supervision

Automated Tasks = More Software• ASC 842 and IFRS 16• Asset-level lease accounting subledger• Automated Lease classification• Lease vs buy analysis• Multi-ledger design• Bulk data loader• Fast Integrations• Automated notifications and mailback• Workflow and segregation of duties

SoftwareCosts

SoftwareCosts

HeadcountCosts

HeadcountCosts

Lower Cost of Ownership

More Expensive. Higher Risk.

Less Expensive. Lower Risk.



• Understanding the Complexity• Test Planning and Execution


TEST WITH YOUR DATA


Testing Complexity

Total Combinations: 97,844,723,712

Unit Price [2 -- provided or not]Lease Rate Factor (LRF) [2 -- provided or not]Utility-Based Pricing [2 -- provided or not]Payment Timing [2 -- advance or arrears]Payment Frequency [4 -- monthly, quarterly, semi-annual, or annual]Lease Term [4 chosen as representative]Step Payments [4 chosen to represent none, upfront rent holiday, escalation clause, prepayment]Interim Rent [2 -- included or not]Other Related Expenses: IDC [2 -- included or not]Other Related Expenses: Lease Incentive [2 -- included or not]Other Related Expenses: CAMS [2 -- included or not]Other Related Expenses: Deposits [2 -- included or not]Other Related Expenses: End of Life / ARO [2 -- included or not]

PRICING STRUCTURE65,536 Combinations

KEY EVENTS216 Combinations

Available for Use Date (AFUD) [3 -- relative to LSD]Lease Start Date (LSD) [3 --relative to comparative period]Payment Adjustments [3 --none, contingent one-time, change in underlying index rate]Modifications [8 chosen as representative]

RC EOT Option [8]RC Holding Period [3 --relative to Lease Term]Actual EOT Option (Disposition) [12 chosen relative to RC EOT Option]

END OF TERM288 Combinations

CLIENT SETTINGS8 Combinations

CLASSIFICATION3 Combinations

Incremental Borrowing Rate (IBR) [4]Fiscal Calendar Type [2 -- Gregorian or 4/4/5]

OperatingCapitalized-OperatingFinance


Testing Strategies

Histogram analysis of 100 billion lease accounting combinations

100% Accuracy for 95% of Portfolio

EdgeCases Edge

Cases



• Center of Excellence• Talent Challenge• Training Strategy


CHANGE MANAGEMENT


The Leasing Center of Excellence

Testing of embedded leases for inclusion. Classification as operating or finance lease.

LEASEDEFINITION

Subledger cutoff. Reconciliation and adjusting entries. General ledger upload.

MONTHLY CLOSE

Rent and contractual changes. Reasonably certain end of lease plans.

MODIFICATIONS & REASESSMENTS

Classify and record initial journal entries after assessing commencement, term, payments, reasonably certain plans, IBR.

INITIAL RECOGNITION & MEASUREMENT

Recording of journal entries to reflect end of lease renewal, termination, or buyout.

END OF LEASE RECORDATION


The Big Challenge with Talent

2015 2020

250 Experts 250,000 Experts


ASC 842

Developing a Training Strategy

Who?• Center of Excellence• Asset Users

How?• Online • In Person Classroom

What?• Business Impacts• New Software• Process Changes• Policies and Controls



• Leasing Spend Cube• Competitive Capital Sourcing• Reducing End of Term Costs


BEYOND COSTS TO SAVINGS


Analyzing Leasing Spend

CostCenters

Real EstateMaterial HandlingIT and Data CenterVehicle FleetTransportation

Commercial BanksVendor CaptivesIndependents

Business Unit ABusiness Unit BBusiness Unit CBusiness Unit D

Over 15 Cost Savings

Opportunities


Lease versus Buy Analysis

Market rates and financial variables are centrally

controlled by headquarters

LEASE BUY

BreakevenAnalysis

IndicativeClassification*

Net Present Value

User-friendly Asset Request Form enables local teams to

quickly submit requestsAnnual

Cash Flow

TaxDeduction

MonthlyCash Flow

* Current Standards (ASC 840 and IAS 17)


Competitive Sourcing Lifecycle

CompareOffers

Internal Rate of ReturnPresent Value

Cash Flow

CompetitiveBidding

Your Preferred LessorsCommercial BanksVendor Captives

Independent Lessors

MatchLessors

Credit RatingsAsset Category

Ticket SizeGeographic Region

GenerateRFP

Product DescriptionLease Structure

Payment FrequencyEnd of Term Options

StandardizedContract

Master Lease Agreement

Schedule & Rider

Data &Documentation

Ship To LocationSerial NumberRent Payment

Frequency & Timing

Lease vsBuy Analysis

Present ValueCash Flows

Breakeven AnalysisLease Classification

Savings of 6-8% on Competitive Sourcing of Equipment Leases


End of Term Cost Reductions

End-of-Term Notification Actions

MissedDeadline

DeadlineAt Risk

CompletedBy Deadline

$0$20$40$60$80

$100

Jan Feb Mar Apr May Jun Jul

Upcoming End-of-Term DecisionsLessor Value Buyout Return RenewAlphabet Leasing

ABC Finance

Acme Leasing

XYZ Finance

$100

$80

$60

$120

Dollar Value of Evergreen

Item DescriptionMaterial Handling: Pallet Jack

Blade Server

Multifunction Copier/Scanner

Delivery Van

Deadline65 Days

77 Days

13 Days

25 Days

Yes

No

Yes

No

Yes

No

Yes

No

No

Yes

No

Yes

Term48 Months

36 Months

24 Months

60 Months


Leasing Efficacy Analysis

0 0.2 0.4 0.6 0.8 1

Vehicle Fleet

Corporate Aircraft

Office Equipment

Rail Cars

Marine Vessels

End User IT

Data Center

Material Handling

Present Value as a Percentage of Purchase Cost

Asse

t Cat

egor

y



MICHAEL KEELERCEO AND FOUNDER LEASEACCELERATOR

MARK KOPPERSMITHVP CUSTOMER EXPERIENCE LEASEACCELERATOR

QUESTIONS AND ANSWERS


Contact Details

Michael KeelerCEO and Founder

[email protected]

Mark Koppersmith VP, Customer Experience

[email protected]



THANK YOUQUESTIONS?

LeaseAccelerator LeaseAccelerator @LeaseAccelerate LeaseAccelerator

www.leaseaccelerator.com


Location Changes

At End of Term: Partial EventsAt Inception: Every Asset Has Unique Life

Fort

Wor

th

48-Month Term

Arlin

gton

60-Month Term

Fort

Wor

th

Return Renew

Arlin

gton

Return Buyout Renew


10-12% Savings

Process Transformation

Avoid Restatement

Sustainable Compliance

Value Proposition: Enterprise Lease Accounting

6-8% Savings

Return on Investment

Compliance Applications

SOURCING

Sourcing Application

MANAGEMENT ACCOUNTING

Controller, Treasurer, & CPO

Corporate ControllerChief Procurement Officer


How We Are DifferentCompliance Applications

SOURCING

Sourcing Application

MANAGEMENT ACCOUNTING

Controller, Treasurer, & CPO

Corporate ControllerChief Procurement Officer

Process/Workflow AutomationInternal Controls & ReportingPerformance ManagementSOC 1 Type II & SOC 2 (Deloitte)

Asset-level AccountingAutomated ClassificationAutomated Transition AccountingGlobal Lease Accounting Subledger

Global Lessor NetworkAutomated Bidding Bid AnalyticsEcosystem Restructuring

On-line Video Training and Certification

On-going Customer Success + 24/7 Global Customer Support

© 2017 leaseaccelerator inc. page 1 - mapi.net secrets of... · •audit – how will auditors...

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