IS YOUR LEASE SOLUTION FASB READY? It s here!
Hello! Jaron Banks Sr. Sales Engineer Accruent Chris Smart Manager, Product Management Accruent Accruent Confidential and Proprietary 2016 2
Agenda Brief background summary Effective dates Product functionality Supported platforms Upcoming accounting events 3
HOW DID WE GET HERE?
How did we get here? Timeline of lease project Memorandum of Understanding FASB & IASB Discussion Paper, Leases: Preliminary Views Original Exposure Draft Issued (Aug. 10 th ) 2006 2009 2010 Revised Exposure Draft Issued (May 16 th ) Comment Period Ended New Standard Issued 2013 2013 2016 5 5
ROI Analysis Benefits Costs Eliminates off-balance sheet financing Improved comparability Financial position of lessee accuracy Improvement for prepares Implementation costs: Personnel costs to evaluate existing leases Implementation costs: Internal educational costs Implementation costs: Inputs available due to footnote requirement Recurring costs for sustaining 6
FASB s Dual Model Balance Sheet Income Statement Cash Flows Finance Right-of-use asset & Lease liability Amortization expense Interest expense Cash paid for P&I payments Operating Right-of-use asset & Lease liability Single lease expense straight line basis Cash paid for lease payments 7
FASB Update 8
UPCOMING DATES
Effective Dates Transition period Public adoption Private adoption 2016 2018 2019 Present comparative periods using modified retrospective method Fiscal years beginning after December 15 th Fiscal years beginning after December 15 th 10
PRODUCT FUNCTIONALITY
What can we do? Transition Maintain Analyze 12
What can we do? ASC 842: Transition Does it meet any of the following: Transfer of ownership Reasonable certain option to purchase Lease term is a major part of economic life Present value of lease payments is substantially all of the fair value Transfer Leases Interest Rate Lease Classification Initial Measurement 13
PRODUCT DEMO
Lessee Accounting Finance Operating Liability measured at present value Front loaded expense Right-of-use asset initially measured at cost Right-of-use asset generally amortized on straight-lined basis Liability measured at present value of remaining lease payments Straight-lined expense Measure right-of-use asset at amount of lease liability and adjust Recurring costs for sustaining 15
Example lease Description Lease term Economic life Purchase option Rent payments Details 10 years (no renewal option) 39 years None $1,000, escalating 5% every year Interest rate 5.0% Initial cost Residual value guarantee None None 16
Example Balance sheet, beginning of year Operating lease Finance lease Right-of-use asset 116,232.90 116,232.90 Lease liability (116,232.90) (116,232.90) Income statement Lease expense 1,257.79 Amortization 968.61 Interest expense 484.30 Income before tax (1,257.79) (1452.91) Cash flow statement Operating activities (1,000) (484.30) Investing activities Financing activities (515.70) Balance sheet, end of year 1 Right-of-use asset 106,007.40 103,641.00 Lease liability (109,308.66) (109,308.66) 17
What can we do? ASC 842: Maintain Leases required to adopt new standards following transition: Existing leases at transition New leases commenced during transition Leases changed in classification Specified reliefs Subsequent Measurement Lease Payments Variable Lease Payments In-Substance Fixed Payments 18
What can we do? ASC 842: Analyze Lessees will be recording almost every lease on the balance sheet as either: Finance (Type A) Operating (Type B) Portfolio Management Portfolio Analysis Reporting GL Integration 19
What are we continue to work on? IASB client validation Bulk import tools Finalizing all scenarios Enhancing user experience Audit data archiving 20
Accruent Timeline LA Cloud 16.2 Release Accounting Reports FASB Lease Standards Released 8.6 Release Includes Accounting Update LA Cloud Release Includes Accounting Update 8.5.1 Release Includes Accounting Update 8.4.2 Release Includes Accounting Update Q1 2016 Q2 2016 Q3 2016 Q4 2016 Final Development 21
How do we get there? Supporting versions of lease accounting compliance 8.4.2 Lease accounting 8.5.1 Lease accounting 8.6 Lease accounting LA Cloud Lease accounting Key date notifications Bulk variable expense import Chrome compatibility Property APIs available Enhanced reporting universe IE11 compatibility Business objects upgrade all previous enhancements (less BOBJ) 22
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