Lease and Revenue Recognition Accounting Workshop Hosted by: Smith and Gesteland August 14 15, 2017 Madison Marriott West (This workshop qualifies for 16 hours of CPE) Monday, August 14, 2017 Agenda Section One The FASB s New Lease Accounting Standard 8:30 Introduction to the new Lease Accounting Model Overview 8:40 New Lease Accounting Model Definition of a Lease, Initial Measurement and Classification Definition of a Lease and Scope Related Issues Background why change was considered necessary Effective date and transition Preview of tactical issues in the transition Overview of the key provisions of the new standard Scope of the new standard Definition of a lease Identified asset o Explicitly identified asset and substitution rights o Implicitly identified asset o Portions of assets Control o Right to substantially all economic benefits o Right to direct the use Embedded leases Leases with terms less than or equal to twelve months Initial Measurement and Lease Classification Contract consideration and allocation o Lease and non-lease components, imbedded leases Lease commencement date
Initial measurement of the lease liability and right-of-use asset o Lease payment o Lease term o Discount rate o Initial direct costs o Lease incentives Classification of the lease as operating or finance o Criteria to determine operating or finance o Expense recognition for operating leases straight line o Expense recognition for finance leases interest and amortization Examples 10:00 Networking Break 10:15 The New Lease Accounting Model Subsequent Measurement, Presentation and Implementation Subsequent recognition and measurement Lease liability equal to present value of lease payments Measuring the right-of-use asset and related amortization Expense recognition for operating versus capital leases Balance sheet classification Statement of cash flow classification Disclosures Impairment testing for the right-of-use asset Lease modifications and reassessment of lease term Examples and case studies Subleases Sale and leaseback transactions Examples and case studies for subsequent measurement Implementation Challenges for the New Lease Model Effective date and transition method decisions Gathering all relevant information Market communication issues Impact on other financial measures such as EBITDA Understanding the new lease accounting model's impact of Internal Control over Financial Reporting IT challenges 11:30 Lunch 12:00 Lessor Accounting Lessor accounting changes o The more modest changes to lessor accounting o Control of the leased asset similar to the revenue recognition standard Operating leases are still operating leases
Sales type and direct financing leases with the new control guidance Lessor accounting examples Section Two The FASB s New Revenue Recognition Standard 1:00 Transition and a Big Picture Overview of the Standard Implementation date F/Y beginning after December 15, 2017 or public entities, one year later for non-public Transition alternatives Issues in selecting a transition method Objectives of the standard underlying principles you need to know The five-step model for revenue recognition Scoping issues 2:30 Break 2:45 Five-Step Revenue Recognition Process, Part One Step 1: Identifying Contracts with Customers - Characteristics of contracts in scope for revenue recognition - When does a contract have economic substance? - Distribution networks? - Collectability considerations - When to combine contracts - Contract acquisition costs - Contract fulfillment costs - Changes required for systems and recordkeeping - Contract modifications Step 2: Identifying Separate Performance Obligations in Contracts - What are performance obligations? - Why identifying performance obligations is important the unit of account for revenue recognition - Identifying deliverable products and services - When are products or services separate performance obligations? - The concept of distinct - Examples - Bundling or aggregating products or services that are not distinct - Performance obligations satisfied over time - Are warranties a performance obligation? - Onerous performance obligation guidance, no immediate losses 4:30 Adjourn
Tuesday, August 15, 2017 8:30 Five-Step Revenue Recognition Process, Part Two Step 2: Identifying Separate Performance Obligations in Contracts, Concluded Step 3: Determining the Transaction Price - Variable consideration issues - Volume rebates - Co-op advertising with retail partners - Time value of money - Constraints on amount of variable consideration recognized Step 4: Allocating the Transaction Price to Separate Performance Obligations - Basis for allocation relative standalone selling price - Estimating relative standalone selling price - When alternative allocation methods (e.g., the residual method) are appropriate - Case examples of allocating transaction price 10:00 Break 10:15 Five-Step Revenue Recognition Process, Part Three Step 5: Recognizing Revenue When a Performance Obligation is Satisfied - The concept of control - Assessing when control transfers - How type of shipping, risk of loss and taking title may or may not affect control - Performance obligations satisfied over time measuring performance 11:30 Luncheon 12:00 Disclosure Requirements and Implementation Disclosure Requirements - Review of the new disclosure requirements qualitative and quantitative - Disaggregated revenue - Contract cost disclosures - Presentation of uncollectible revenue - Judgments made in apply the standard Implementation Issues and Discussion - Overview of Implementation Challenges - Review of transition alternatives - Guaranteed sales arrangements Where will new estimates be required? - Managing changes to ICFR and related reporting
2:30 Break - Possible issues in extended warranty programs - Disclosure infrastructure - Tracking contract costs 2:45 Disclosure Requirements and Implementation, concluded 4:00 Closing Questions and Answers 4:30 Adjourn