getting started with lease accounting for assets for
TRANSCRIPT
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Getting Started with Lease Accounting for Lessees of Property and Non-Property Assets for EnterpriseOne
Karen L. Brown, Senior Principal Product Manager - JD EdwardsSeth Chaikin, Managing Director – Grant ThorntonAugust 2019
Session 105480 - InFocus 2019
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Program Agenda
Solution Overview
Steps to Implement the Solution
Basic Set up
Processing a Lease - Demonstration
Q&A
Resources
1
2
3
4
5
3
6
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Lease Accounting Standard
What
• Lessee Accounting for property and non-property leases – on the balance sheet
• Revenue Recognition for lease management companies
• Straight-line rent accounting for lessors
Why
• Regulatory accounting requirement - provide investors and creditors more transparency into long-term leases
When
• January 1, 2019 – public companies
• January 1, 2020 – private companies
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FASB ASC 842 and IFRS 16 Leases
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Lease Accounting StandardAre you affected?
Other
Real EstateOil and Gas
Agribusiness
Engineering and Construction
Manufacturing & Distribution
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Lease Accounting Standard
• Lessees of Property and Non-Property Assets– Do you have long term leases for:
• Equipment, vehicles, or other non-property assets?
• Office or retail space, buildings or land, or other property assets?
– Are you currently using A/P to manage long term lease payments?
– If you answered Yes, you will need a solution to manage these leases as assets on the balance sheet
7
Are you affected?
Most JD Edwards customers will need a solution
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Lessee Lease Accounting Standard
Old Standard:
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New Standard:
JD Edwards customers
Rent:• Equipment• Office/Retail Space
Use AP:• Make rent payments• Expense rents
Lease:• Equipment Assets• Property Assets
Requires a leasing system:• Manage lease terms• Pay leases• Account for leased assets on the balance sheet
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Lessee Lease Accounting Standard
9
New Standard:
JD Edwards customers
Lease:• Equipment Assets• Property Assets
Requires a leasing system:• Manage lease terms• Pay leases• Account for leased assets on the balance sheet
Assets Current Assets
Cash Accounts Receivable Inventory
Current Assets Fixed Assets
Property and Equipment Right of Use Assets Accumulated Depreciation Accumulated Amortization
Fixed Assets
Assets Liabilities and Equity
Current Liabilities Accounts Payable Accrued Payroll Liability
Current Liabilities Long Term Liabilities
Long Term Debt Lease Liability
Long Term Liabilities Stock Holder’s Equity
Retained Earnings YTD Income (Loss)
Stock Holder’s Equity
Liabilities and Equity
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Where Lease Accounting Fits in JD Edwards EnterpriseOne
Solution Overview
Lease processing available in Real Estate
Management
Finance principles in
Financial Management
Lease Accounting
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Solution Overview
• Lessee Accounting available for customers with a license to Financials
• For EnterpriseOne releases 9.1 and 9.2
• Financials license now comes with a restricted use license of Real Estate Management:– Entitled Products and Restricted Use Licenses
• A license of Financials includes a restricted-use of Oracle JD Edwards EnterpriseOne Real Estate Management, limited to lessee lease management features.
• Any usage of sales overage, expense participation or lessor lease management requires a full use license of Real Estate Management.
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Generally Available
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Adjustments to Balance Sheet
Accounts
Recurring Billing for Leases
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Approve Lease Terms
Accounting Manager
Lease Administrator
Lease Information
Creates
Reviews
Notification
Amortization Schedules
Lease Commencement Journal Entries
Lessor
Pay
Lessee Accounting Business Process
Updates amortization schedules with audit
informationAsset
Creates Leased Assets in Asset Master
Create
Billing Information
Creates Manual and Recurring Billing for the Leased Assets
Create
Monthly Processing
Adjustments to Balance
Sheet Accounts
Create
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Our Scenario
• We have a finance lease for a copier and 4 computers from our Office Equipment supplier.
• The lease is for 2 years
• We pay in advance each quarter - $1,500 for the copier and $1,800 for the computers.
• We have no intention of buying the equipment at the end of the lease
• We’ve made a payment of $1,000 to secure the installation of the copier prior to the start of the lease.
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Steps to Implement the SolutionSeth Chaikin – Grant Thornton
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Grant Thornton
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Our Oracle practiceCreating business harmony in the cloud
Find your silver lining
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17
#JDEINFOCUS
About Grant Thornton JDEJD Edwards practice
•Specialized functional
resources
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architecture
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engineering
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• Infrastructure / hosting
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(technical)
Oracle leadership
• The Leading Oracle Platinum Partner presenter at COLLABORATE,
INFOCUS and OpenWorld conferences (more presentations than
any other Platinum partner in the past 3 years)
• Featured in PROFIT magazine – JD Edwards Special Issue
• Teaming with JDE product development – we work with JD Edwards
on enhancing the code base for customers (e.g. OneView
Reporting, Revenue Recognition, Leasing Standards, Configurator)
Experience and recognition
• More than 250 JD Edwards implementations and upgrades as a
practice
• Over 20 implementations in the past 5 years
• Over 50 upgrades in the past 5 years
• 2017 JD Edwards Partner Excellence Award for User Adoption
• 2016 JD Edwards Partner Excellence Award for Vertical Industries
• Oracle JD Edwards recognized Grant Thornton with its 2014 and
2015 JD Edwards Partner Excellence Award for Outstanding
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•Change management
•Cloud roadmap / strategy
•FASB planning
•Chart of accounts
optimization
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Impact to the business
The new standards will drive changes to the business in several areas
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Accounting policies and disclosures
Application of judgment and
estimation
Internal controls related to changes in accounting
policies
JD Edwards configuration to
address new lease data and
processes
Income and other taxes
Debt covenant compliance
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Impact to the users
Accounts Payable
Manage lease payments and schedules
Validate amortization schedules
Setup and maintain recurring payables process
Manage AP voucher creation and payment process
Coordinate with Treasury on changes to payment processes
Property Accounting / Fixed Assets
Identify, classify and maintain leases
Collect data on existing leases
Review and validate data
Define / refine processes for future lease identification
Enter and maintain lease information in JD Edwards going forward
Finance
Manage financial impact
Gather and document assumptions required for calculations
Project impact on Balance Sheet, ratios, debt covenants
Provide assurance on proper software calculations during shift to
new standards
Advise on appropriateness of financial statement treatment and JEs
Tax
Manage tax impact
Analyze tax classification of leases and potential book-tax
differences
Flag leases that need to be addressed for tax classification
purposes
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Implementation process and timeline
21
Plan and Assess Design Build and Test Train and Deploy
1-2 Weeks 2-3 Weeks 4-5 Weeks 2-3 Weeks
• A typical implementation takes 10-13 weeks
• Key factors impacting the timeline –– Quality and completeness of lease data across the organization– Number of different types of leases (scenarios)– Number of locations involved, including global locations– Level of involvement of appropriate resources– Level of effort to implement ESUs and potential retrofit needed for objects impacted – dependent of
whether you are code current or not
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Basic Setup
• Constants
• Bill codes to support the billing information
• Accounts for the new Lease Accounting accounts
• AAIs for processing leases and leased assets
• Billing Frequencies
• Fixed Asset Defaults
• Setup Lessor as a supplier
• Processing Options
23
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P1510 – Real estate constants
Default values used when creating a new
lease
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P1512 - Work with bill codes/adj reasons
• Bill codes used to identify and account for different types of payments
• Specify how bill codes affect balance sheet calculations
• Effect on Lease Liability
• Yes
• No
• Effect on Right of Use Asset
• Lease incentive
• Lease payment
• Initial direct cost
25
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P1512 - Work with bill codes/adj reasons
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P1512 - Work with bill codes/adj reasons
27
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Accounts for the new Lease Accounting accounts
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Account Description LODPosting
Code1821 Prepaid Lease - Lessee Leases 6
2080 Leased Assets – ROUA 6
2100 Accumulated Depreciation & Amortization 5 N
2180 Accum Amort - Leased Assets 6
4695 Lease Liability 5
8200 Lease Expense 5 N
8210 Amortization Expense – Lease 6
8220 Lease Expense 6
8230 Interest Expense 6
8240 Sublease Expense Offset 6
8250 LL Termination Adjustment Offset 6
8260 ROUA Termination Adjustment Offset 6
8270 ROUA Remeasurement Profit/Loss 6
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AAIs for processing leases and leased assets
29
Seq Item No. Description Line 1 Description Line 2 Co Obj Acct15.2 L0 Pre-paid Rent - Lessee Balance Sheet Lessee Acctg 00001 182115.2 L1 Lease Expense Balance Sheet Lessee Acctg 00001 822015.2 L2 Interest Expense Balance Sheet Lessee Acctg 00001 823015.2 L3 Amortization Expense Balance Sheet Lessee Acctg 00001 821015.2 L4 LL Rounding Adjustment Balance Sheet Lessee Acctg 00001 469515.2 L5 ROUA Rounding Adjustment Balance Sheet Lessee Acctg 00001 218015.2 L6 Sublease Expense Offset Balance Sheet Lessee Acctg 00001 824015.2 L7 LL Termination Adjustment Offset Balance Sheet Lessee Acctg 00001 825015.2 L8 ROUA Termination Adjustment Offset Balance Sheet Lessee Acctg 00001 826015.2 L9 As-Of Balance Adjustment Balance Sheet Lessee Acctg 00001 208015.2 LC Accumulated Amortization Balance Sheet Lessee Acctg 00001 218015.2 LL Lease Liability Balance Sheet Lessee Acctg 00001 469515.2 LR ROU Asset Balance Sheet Lessee Acctg 00001 208015.2 LV ROUA Remeasurement Profit/Loss Balance Sheet Lessee Acctg 00001 827015.04 PCLPMT Payable Lease 00001 4110
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Setup Lessor as a supplier – Address Book
32
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Processing Options - Lease master (P1501)
Processing option to offer a separation of
duties: Lease Administrator and
Accounting Manager
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Processing Options – Recurring Billing (P1502)
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Processing Options to determine ability to
change data and notify users of changes
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Processing Options – Manual Billing (P1511)
35
Processing option to determine if changes are
permitted
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Processing Options –Lease Amortization Schedules (P15171)
36
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Processing Options – Lease Commencement (R15170)
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Processing Options – Balance Sheet Lessee Accounting Journals (R15180)
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Processing a Lease - Demonstration
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Processing a Lease - Demonstration
• Create the lease, the lease details, and the assets
• We will process the lease for the copier:– Create the manual billing for the installation payment
– Create the recurring billing
– Create the amortization schedules
– Generate and review Lease Commencement journal entries
– Generate and review 1 month’s worth of journal entries
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What we will cover
Demo
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Search using ‘Lease Management’ on LearnJDE.com to Learn More
Lease Management
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Content Organized by Role: Decision Maker, Implementer,
User
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Key Benefits
Description and Quick Tour
Be aware of the MORE/LESS Option
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Real Estate Management – Implementation Guide https://docs.oracle.com/cd/E64610_01/EOARM/toc.htm
Lease Management on LearnJDE.comhttps://docs.oracle.com/cd/E84502_01/learnjde/financial_management.html#lease-management
Standards boards
• FASB.org
• IASB.org
Resources
44
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