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eBook - Real Estate Leases Accounting and Business Considerations for Implementation under ASC 842 / IFRS 16

Posted by Bramasol Leasing Administration Team on Tue, Jul 31, 2018 @ 04:56 AM

In February 2016, the Financial Accounting Standards Board IgnitePossible-HotTip200x130

(FASB) issued Accounting Standards Update (ASU) 2016-02 (“ASC 842”) Leases, which provides new guidelines that change the accounting for leasing arrangements. The new leasing standard becomes effective in fiscal years beginning after December 15, 2018

The primary purpose of the standard is to address the current accounting treatment of operating leases which are deemed to be off balance sheet financing arrangements and are only disclosed via a company’s financial footnotes in the “Commitments and Contingencies” footnote. Upon the adoption of ASC 842, for every identified lease, companies will be required to create a lease liability calculated as the present value of the future fixed payments and a corresponding asset (“right of use” asset).

The right of use asset will be amortized over the life of the lease. The income statement will be impacted by a straight-line lease expense item that would essentially contain an interest component with the amortization of the asset being the plug-in order to achieve straight line lease expense over the life of the lease. One of the key challenges of adopting the new standard will be for companies to assess and apply the incremental borrowing rate applicable to them which will be used in the present value calculations for the capitalization of lease liability and right of use assets related to leases.

The new leases standard will significantly affect lessees and lessors in the real estate industry, including their considerations related to non-lease components, initial direct costs, and accounting for sale- leaseback transactions. In addition, real estate lessors will need to understand the standard’s broader implementation implications for lessees as well as the potential for changes in tenant behaviors.

eBook Real Estate Leases ASC842  IFRS16 TueTip

This eBook also addresses the three most common forms of real estate lease;

  • Net Leases or triple net lease,
  • Modified Gross or Base year Leases and
  • Gross Leases

Lessees and lessors are required to separate lease components and non-lease components (e.g., any services provided) in an arrangement and allocate the total transaction price to the individual components. Lessors would perform the allocation in accordance with the guidance in the new revenue recognition standard, and lessees would do so on a relative stand-alone-price basis (by using observable stand-alone prices or, if the prices are not observable, estimated stand-alone prices).

This eBook will help you explore different accounting treatment for property taxes and insurance, Variable Lease Payments, Initial Direct Costs, Sale-Leaseback Accounting, and at the end best part is Business Impact and Implementation Considerations.

Download the eBook now

As crunch time is here for ASC 842 and IFRS 16 compliance, Bramasol can still help you comply on-time. Ask us how!

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Topics: SAPLeaseAdmin, IFRS16, RLCS, Leasing Solution, ASC 842

Transitioning to ASC 842, Where are all your company’s lease documents?

Posted by David Ogletree on Tue, Jul 10, 2018 @ 02:33 AM

LeaseAdministration-HotTipThe new lease accounting standard ASC 842 is effective for public companies beginning January 1st, 2019. The primary purpose of the standard was to address the fact that most operating leases are deemed off balance sheet financing arrangements and currently are only disclosed via a company’s financial footnotes in the “Commitments and Contingencies” footnote.

Therefore, for every identified lease, companies will be required to create a lease liability calculated as the present value of the future fixed payments and a corresponding asset (“right of use” asset). The right of use asset will be amortized over the life of the lease. The income statement will be impacted by a straight-line lease expense item that would essentially contain an interest component with the amortization of the asset being the plug-in order to achieve straight line lease expense over the life of the lease.

Primary issue is locating the entire population of active leases

Since companies were not required to capitalize leases in the past, record keeping for leases were often decentralized.  Most companies did not ever require operating leases to go through a formal capital committee review.  This meant record keeping and leasing terms were often undocumented.  The leasing related companies often transfer(sell) existing leases in their portfolio to other leasing companies making it even more difficult to track down leases.  The new standard is forcing companies to go through the process of locating all their operating leases.  For many firms this is an onerous task as some leases are decentralized and managed by their subsidiaries.  The following is a course of action to gather all the leases for an entity for ASC 842 accounting determination.

These five required steps to completeness and determination will help make sure that all leases have been analyzed for proper ASC 842 adoption.

Make sure all leases have been analyzed for proper ASC 842 adoption_tue-tip-10JUL

1) Commitments and Contingencies Footnote Schedule

Even though companies were not required to account for their operating leases on their balance sheet under ASC 840, there were required footnote disclosures.  The operating leases for future periods were disclosed in the “Commitments and Contingencies” section of their 10-K filings.  This disclosure would serve as a starting basis for all active operating leases.  The footnote would most likely contain a schedule of all future annual lease payments, lease terms, and minimum required lease payments. This schedule would be the beginning basis for the master lease schedule.

2) Leasing/Legal Department Inquiries

Some very large or lease centric companies have a Leasing department.  The Leasing department would likely have a listing of all approved leasing companies and all related contact information. The Leasing department would be the starting point of all lease negotiations and final lease execution. Inquire with leasing management as to their current active lease files.  This population of leases discovered in your initial inquiry of leasing management should detect leases not included in the “Commitments and Contingencies” footnote disclosure.  The Legal department is also a key contact regarding leases(and contracts) to make a formal inquiry.  The Legal department reviews, negotiates, and approves all legal documents.  The Legal department would keep a repository of all approved and executed legal documents.  Access to this contract repository will aid in the detection of “embedded leases”.  Embedded leases are leases under ASC 842 that are within a services contract not currently accounted for as an operating lease and therefore not included in the “Commitments and Contingencies” footnote.   

3) AP Sub-Ledger Analysis

As the company continues to navigate ASC 842 adoption, for completeness purposes, all payments in the AP sub-ledger in the trailing twelve months should be reviewed. These payment records should be reviewed in detailed for any vouchers that might relate to a lease and was not present in the 10-K or the Leasing/Legal department contract files.  Companies should query their detailed AP data for key words such as “lease”, “rent”, “building”, “equipment” and the like.  It would also be prudent to query the AP data for the entity’s common lease related vendors.   The leasing company vendor list would have been provided by Leasing management or AP management.  All leases detected through the AP sub-ledger should be matched against the list derived from the prior lease detection efforts.  All unmatched leases should be added to the original list to continue building the master lease schedule.  The next step in the AP analysis is reviewing payment files for any monthly recurring payments.  Trace these recurring payments to the AP voucher and compare to the master lease schedule.  Any voucher that is recurring and not already included on the master lease schedule would require further analysis to determine if it is indeed a lease. If the payment relates to a service contract, review the contract in the files of the Legal department, as discussed earlier to determine if there is an embedded lease.

 4) GL Detail Analysis

Next, a detailed listing from the general ledger for the rent expense account(s) should be examined and compared against the list derived from the all the previous lease detection efforts.  This is to detect payments or reclasses that are lease related but outside the AP sub-ledger.  This process may reveal wire transfers related to a lease or transactions that are lease related but not detected by the prior lease detection steps.

A detailed listing of the general ledger for property tax and insurance expense should also be examined and compared against the data derived from the previous inquiries.  This listing may detect property taxes and insurance expense for net leases not otherwise accounted for in the prior steps.

5) Treasury Department inquiry

All wire transfer payments should be reviewed for any payments that might relate to a lease.  Treasury departments routinely wire transfer large rent payments, especially related to leased real estate due to the exorbitant late fees charged in standard rental agreements. 

It would also be prudent to review the operating bank statement for wire transfers posting towards the end of the month that might relate to a lease. These wire transfers can be traced back to the wire transfer request documentation to determine if the payment is lease related.

Summary

As companies move through these steps to finalize their entire lease population, it is advisable to return to the Leasing and Legal department with the leases discovered that were not included in their original Leasing and Legal department inquiry.  This will allow these departments to update their corporate files and better manage the lease administration process.  The Leasing Department in collaboration with the Corporate Accounting department, may want to consider having a central repository software program for all the company’s leases, terms, minimum required lease payments, etc.  This will aid the Accounting department on a going forward basis as all new leases will be required to be analyzed for proper ASC 842 lease adherence. It will also allow for much stronger internal controls surrounding the leasing environment, and consequently, more accurate financial reporting.

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Topics: leasing, Leasing-Hot-Tips, IFRS16, ASC 842

Companies Need Holistic Approach to Lease Accounting Compliance

Posted by Bramasol Leasing Administration Team on Tue, Jun 5, 2018 @ 03:36 AM

LeaseAdministration-HotTipA recent article in Accounting Today provides an excellent view of how companies in many industries are moving toward compliance with the new lease accounting standards, ASC 842 and IFRS 16.

Highlights of the article include:

“The approach for implementing this lease accounting pronouncement really needs to be holistic for a company,” said CohnReznick partner Rebecca McDonald. “It can’t be siloed with just the accounting department. It has a broad reach across the organization and impacts a lot of different departments.”

The new standard requires putting many leases on the balance sheet for the first time, and she believes the accounting and finance department needs to take the lead role to drive the implementation. But the effort also should heavily involve the operations, IT, treasury, tax and facilities groups.

“It just has a broad reach,” said McDonald. “You have to work across the organization to really be able to gather all the information needed to implement the standard as far as the leases go, and to have that holistic team approach to make sure you leave no stone unturned when analyzing whether any of your contracts or any of your leases that haven’t been on the balance sheet are reported that way will be impacted, just to make sure that you have a complete inventory of all the contracts and leases that are in the organization. It’s just a lot heavier lift than it has been historically.”

The article also provides information from a recent survey conducted by staffing company Robert Half and consulting firm Protiviti, which focused on how companies are doing with the transition to new lease accounting standards.  The survey found that only 44 percent of companies have begun the transition process and that, of those that have started, only 48 percent have completed an assessment of what needs to be done.

Business services companies were the most likely to have begun the transition, at 71 percent, according to the survey respondents. Only 31 percent of executives in the retail and wholesale industry and 25 percent in construction said their organizations are currently working on adopting the new standard.

LeasingByIndustry

Click here to read the full article in Accounting Today.

Click here to learn more about Bramasol's solutions for Lease Accounting Compliance solutions.

 

Rapid Leasing Compliance Solution Click Here to Learn More

 

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Topics: Leasing-Hot-Tips, ASC842, IFRS16

General Availability for New Version 4.0 of SAP Lease Administration by Nakisa

Posted by Bramasol Leasing Administration Team on Tue, May 29, 2018 @ 07:29 AM

LeaseAdministration-HotTipNakisa, Bramasol's partner for leasing solutions, has announced general availability of the new 4.0 version of Lease Administration by Nakisa.

For SAP customers, this assures that Lease Administration by Nakisa 4.0 will integrate seamlessly with their SAP suite, and that the product has been tested and validated by SAP for security, performance, supportability, accessibility and documentation. The new release is compatible with current and upcoming SAP landscapes, while  reducing TCO for implementation, ERP integration costs, and overall risk.

Lease Administration by Nakisa is a simple and cost-efficient lease accounting solution, designed to support regulatory compliance with new leasing standards, manage global lease portfolios and streamline lease accounting operations. Lease Administration by Nakisa 4.0 introduces key enhancements including:

  • Enhanced compliance with new lease accounting standards (IFRS 16 and ASC 842)
  • Better control of the lease process from master lease agreement to contract level
  • Improved bi-directional integration with SAP

Learn more here.

According John Froelich, Vice President of Marketing and Strategy at Bramasol, "Nakisa's release of version 4.0 is another major step forward in continuing their leadership in solutions for leasing compliance, optimization and overall financial transformation.  These features enhance an already rich solution, deepening it's overall capability and widening the gap between it and other so-called lifecycle lease solutions."

As a partner of both SAP and Nakisa, Bramasol provides a holistic view to the impact that the new Leasing standard will have on your organization and purpose-built solutions for both rapid compliance and long term optimization of lease administration.  Learn more about Bramasol Leasing Solutions here.

Rapid Leasing Compliance Solution Click Here to Learn More

Nakisa 4.0 key enhancements

 

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Topics: Leasing-Hot-Tips, ASC842, SAPLeaseAdmin, IFRS16

New Rapid Compliance Solution for Lease Accounting Standards ASC 842 and IFRS 16

Posted by Bramasol Leasing Administration Team on Tue, May 15, 2018 @ 12:00 AM

LeaseAdministration-HotTipBramasol, the leader in compliance and finance innovation solutions, has announced a new, purpose-built product that reduces complexity and implementation costs, to give companies across a variety of industries a ready-to-deploy solution for lease accounting disclosure reporting and compliance.

In 2016, the International Accounting Standards Board (IASB) and the Financial Accounting Standards Board (FASB) issued new standards for lease accounting: IFRS 16 & ASC 842, which must be implemented by 2019. Both IFRS 16 and ASC 842 are the result of a joint effort between the IASB and FASB to meet the objective of improved transparency, comparability and financial reporting.  These changes will impact virtually all companies, whether lessors or lessees.

Since the new leasing standards-setting process began, Bramasol has been at the forefront of addressing critical issues to help our customers get ready for both IFRS 16 and ASC 842. We have developed the Lease Administration Solution Engagement Roadmap (LASER) that brings together all compliance requirements, stakeholder needs and work-stream processes within a unified and disciplined implementation process.

The Rapid Leasing Compliance Solution further distills these overall efforts in a targeted solution, designed to help companies with straightforward leasing portfolios to cut through the complexity of the new standards and achieve compliance without excessive hassles or expense.

This purpose-built offering is designed for companies with up to 300 leases and includes:
- 5 Basic Scenarios for Real Estate, Movables, or both
- Set-up of Nakisa and/or RE/FX
- Standard data & document loading
- Security set-up
- Standard out-of-the-box disclosures and reports for ASC 842 or IFRS 16

Click Here to see more details on Rapid Leasing Compliance Solution

Rapid-Compliance-banner-social-new

 

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Topics: Leasing-Hot-Tips, ASC842, SAPLeaseAdmin, IFRS16, RLCS

Watch how Bramasol helped a Leading Multinational Retail Giant comply with Leasing Standards ASC 842 and IFRS 16

Posted by Bramasol Leasing Administration Team on Thu, Apr 5, 2018 @ 05:50 AM

The customer is a Leading Global Organization and Multinational Retailing Corporation with annual revenues in excess of US$480 billion and which is one of the largest private employer in the world with over 2 million employees. As an international company, our customer is impacted by the new lease regulations ASC842 and IFRS16 that will take effect from January 2019. These new standards will change the way balancing & handling of lease contracts is performed and will require the company to report almost all lease contracts on the balance sheet, rather than off balance sheet.

The Company is not an early adopter of the standards, but needs to load its leases as part of a first release by March 2018 using the old standards (ASC 840 and IAS17) for North America, Europe, Latin America & Asia Pacific. This is a major challenge, since it involves around 10,000 leases distributed amongst about 950 company codes.


As leading co-innovation partner with both SAP & Nakisa, Bramasol provided a holistic set of solutions & expertise to address the impact and make the company ready for new Lease Accounting Standards ASC842 & IFRS16.

 

 


We Implemented Nakisa SLAN Enabled control of lease contracts with multi-layered approval process Integration with Native Finance System which is Secure, Scalable & Flexible. This enabled lease accounting compliance & streamlined lease administration processes for global lease portfolios.

CS Retail

Since the new leasing standards-setting process began, Bramasol has been at the forefront of addressing critical issues to help our customers get ready for both IFRS 16 and ASC 842. We have developed the Rapid Leasing Compliance Solution which further distills these overall efforts in a targeted turnkey solution, designed to help companies with straightforward leasing portfolios to cut through the complexity of the new standards and achieve compliance without excessive hassles or expense.

This turnkey offering is designed for companies with up to 300 leases and includes;
- 5 Basic Scenarios for Real Estate, Movables, or both
- Set-up of Nakisa and/or RE/FX
- Standard data & document loading
- Security set-up
- Standard out-of-the-box disclosures and reports for ASC 842 or IFRS 16

Click here to Learn more about Rapid Leasing Compliance Solution

Request Demo

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Topics: ASC842, SAPLeaseAdmin, IFRS16, Leasing Solution

New eBook: Lease Admin Solutions Need Scalability, Enterprise Performance and Native Integration

Posted by Bramasol Leasing Administration Team on Tue, Oct 3, 2017 @ 10:45 AM

In 2016, the International Accounting Standards Board (IASB) and the Financial Accounting Standards Board (FASB) issued new standards for lease accounting: IFRS 16 & ASC 842, which must be implemented by 2019. Both IFRS 16 and ASC 842 are the result of a joint effort between the IASB and FASB to meet the objective of improved transparency, comparability and financial reporting.  These changes will impact virtually all companies, whether lessors or lessees.

In addition to presenting a new set of challenges that need to be addressed in the near term, the changes in lease accounting also offer an excellent opportunity for companies to make major improvements in their end-to-end lease management practices.

All companies, whether lessors, lessees or both, need to leverage the process of changing their lease management methodologies. This will allow them to gain better visibility of their lease portfolios, streamline the process of lease management and reduce overall costs.

As long-term innovation partners with SAP, Bramasol and Nakisa have brought together a comprehensive set of solutions and expertise to help companies assess and prepare for the new FASB and IASB leasing standards. These solutions unify disparate leasing data and provide enhanced visibility for companies to make informed decisions on their lease portfolios, assets and liabilities while conforming with the new requirements.

SAP-SLAN-ERP.png

This new eBook provides a closer look at the key issues of Scalability, Enterprise Performance and Native Integration that are critical factors for success in implementation of new lease administration processes that maximize compliance, efficiency and extensibility.

eBook Lease Admin Solutions Need Scalability Enterprise Performance and Native Integration

Click here to download the eBook on Lease Admin Scalability, Enterprise Performance and Native Integration.

 

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Topics: leasing, ASC842, IFRS16, Leasing Solution

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