Use Oracle E-Business Suite to Manage Your Leases for ASC842 and IFRS16_v5 - Copy.pdf
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The document discusses how Oracle E-Business Suite can help companies comply with new lease accounting standards ASC 842 and IFRS 16. It provides an overview of the new standards and their requirements, who in an organization is impacted by the changes, and the challenges of implementing the standards. It also gives an example of the impact the new standards will have on a company's financial statements by showing the accounting entries for a sample lease over four years both before and after adopting the new accounting requirements.
Use Oracle E-Business Suite to Manage Your Leases for ASC842 and IFRS16_v5 - Copy.pdf
- 1. Copyright © 2016, Oracle and/or its affiliates. All rights reserved. Use Oracle E-‐Business Suite to Manage Your Leases for ASC842 and IFRS16 Timothy Hricko Senior Director Oracle Applications Development May 2018 18-‐May-‐18
- 2. Copyright © 2015, Oracle and/or its affiliates. All rights reserved. | Safe Harbor Statement The following is intended to outline our general product direction. It is intended for information purposes only, and may not be incorporated into any contract. It is not a commitment to deliver any material, code, or functionality, and should not be relied upon in making purchasing decisions. The development, release, and timing of any features or functionality described for Oracle’s products remains at the sole discretion of Oracle. 2 18-‐May-‐18
- 3. Copyright © 2015, Oracle and/or its affiliates. All rights reserved. | Compliance with IFRS 16 & ASC 842 State of Leasing Business Needs Oracle Solution Getting Started… 1 2 3 4 3 18-‐May-‐18
- 4. Copyright © 2015, Oracle and/or its affiliates. All rights reserved. | New Accounting Standards Pre-‐Accounting Changes Post Accounting Changes Assets -‐ Right of Use Liabilities -‐ Lease Liability 18-‐May-‐18 4 Balance Sheet Impact: Pre-‐Accounting Changes Post Accounting Changes OperatingCost Lease Expense Depreciation & Amortization -‐ Amortization of ROU Finance Costs -‐ Interest Income Statement Impact: Off-‐Balance Sheet Leased Assets Balance Sheet lease assets financial liabilities equity operating Expenses Income Statement finance Costs Cash Flow Statement operating cash flows financing cash flows net cash flows
- 5. Copyright © 2015, Oracle and/or its affiliates. All rights reserved. | Copyright © 2018, Oracle and/or its affiliates. All rights reserved. The State of Leasing 5 It’s been all about accounting to ASC 842 / IFRS 16 Account to the standard Assess standard’s impact Implement the standard Interpret standard ASC 842 IFRS 16
- 6. Copyright © 2015, Oracle and/or its affiliates. All rights reserved. | Compliance with IFRS 16 & ASC 842 International GAAP (IFRS 16) US GAAP (ASC842) Impact on Lessor / Landlord Accounting & Reporting Many aspects of lessor accounting under the new accounting standards are similar to existing accounting standards. Impact on Lessee / Tenant Accounting & Reporting Lessees are required to recognize most leases on their balance sheets as lease liabilities with corresponding right-‐of-‐use assets Models for Finance & Operating Leases One Model All lease agreements are classified as finance leases Two Models Lease agreements may be classified as either operating or finance leases 6 New Accounting & Reporting Requirements 18-‐May-‐18
- 7. Copyright © 2015, Oracle and/or its affiliates. All rights reserved. | Compliance with IFRS 16 & ASC 842 US GAAP (ASC842) International GAAP (IFRS 16) Effective Dates Public companies: Annual periods beginning after December 15, 2018 (i.e., January 1, 2019 for a calendar year entity), and interim periods within those years All companies: Annual periods beginning after January 1, 2019 All other companies: Annual periods beginning after December 15, 2019 Early adoption is permitted on a retroactive basis Early adoption is permitted on a retroactive basis, provided IFRS 15, Revenue from Contracts with Customers is adopted at the same time Two Year Look Back Two year look back reporting is required to report comparative financial results for FY2017 and FY2018 7 New Accounting & Reporting Requirements 18-‐May-‐18
- 8. Copyright © 2015, Oracle and/or its affiliates. All rights reserved. | Copyright © 2018, Oracle and/or its affiliates. All rights reserved. 8 LEASE ADMINISTRATION CONTROLLER / CAO EXECUTIVES Who is Impacted? What impacts on financial position, borrowing capacity, equity financing? Impact on earnings? What to communicate to investors? Can we automatically create ROU and liability balances? What is the value of lease portfolio? Confirm accuracy of values and expenses What changes to balance sheet and income statements? What is the portfolio value and projections? How to report on one, two or both financial models?
- 9. Copyright © 2015, Oracle and/or its affiliates. All rights reserved. | Copyright © 2018, Oracle and/or its affiliates. All rights reserved. The Road to Compliance 9 Full of twists and turns Harness Contracts Revise Policies Modify Systems Update Processes Review Impacts Create Disclosures Standard Adoption Date -‐ 2019!
- 10. Copyright © 2015, Oracle and/or its affiliates. All rights reserved. | Compliance with IFRS 16 & ASC 842 State of Leasing Business Needs Oracle Solution Getting Started… 1 2 3 4 10 18-‐May-‐18
- 11. Copyright © 2015, Oracle and/or its affiliates. All rights reserved. | Start 2019 2020 2021 2022 Total Right-‐of-‐Use (ROU) 24,798 18,598 12,399 6200 0 Liability (24,798) (19,053) (13,017) (6672) 0 Op Expense-‐ Service 0 1,344 1,344 1,344 1,344 5,376 Depreciation (ROU) 0 6,199.5 6,199.5 6,199.5 6,199.5 24,798 Interest Expense 0 927 636 327 0 1890 Net Income 0 (8,471) (8,179) (7,870) (7,544) (32,064) 18-‐May-‐18 11 Start 2019 2020 2021 2022 Total Right-‐of-‐Use (ROU) 0 0 0 0 0 Liability 0 0 0 0 0 Op Expense – Service & Lease 0 8,016 8,016 8,016 8,016 8,016 Net Income 0 (8,016) (8,016) (8,016) (8,016) (32,064) Pre-‐Accounting Changes Post-‐Accounting Changes Example Lease Start: Jan. 1, 2019 Term: 48 Months Payment: $8,016 / Yr Service $1,344/ Yr Rent $6,672 / Yr PV Rent $24,798 Rate 5%
- 12. Copyright © 2015, Oracle and/or its affiliates. All rights reserved. | High Level Business Flow -‐ Scope 18-‐May-‐18 12 Create Purchase Request Create RFQ Supplier Selection Determine Lease vs. Buy Negotiation Create PO Create Contract Account for ROU and Liability Business User Procurement Accounting Equip Needed Assume lease Pmt, Term, Renewal options Receive Invoice Receive Invoice AP Match to PO Pay Invoice Account for Payment Recognize interest and liability expense Month End Reporting Key Changes
- 13. Copyright © 2015, Oracle and/or its affiliates. All rights reserved. | Business Needs 18-‐May-‐18 13 Create Contract Requirement Note Capture lease contract Need to capture asset / prop related information Classify leases FASB:OP/DF, IFRS: Just one type, Exempt (short term, low value) Lease Term: Include renewal options in liability / ROU Include if reasonably certain it will be exercised Manage contracts in different currencies
- 14. Copyright © 2015, Oracle and/or its affiliates. All rights reserved. | Business Needs 18-‐May-‐18 14 Account for ROU and Liability Requirement Note Recognize lease liability and rightof use at inception Calculate PV of remaining lease payments Use Cost of Funds to calculate PV Maintain interest indexes Lease Term: Include renewal options in liability / ROU Include if reasonably certain it will be exercised Re-‐assess ROU and liability based on amendment and date Use cost of funds effective from the amendment date Multi-‐GAAP accounting for transaction Booking, amendments, renewals, termination, payments, accrual
- 15. Copyright © 2015, Oracle and/or its affiliates. All rights reserved. | Business Needs 18-‐May-‐18 15 Recognize Interest and Liability Expense Requirement Note Accrete liability to reflect payment, interest, reduction of liability Interest calculate: Actual, 30/360, 4-‐4-‐5 Depreciate ROU Multi-‐GAAP accounting for transaction Booking, amendments, renewals, termination, payments, accrual
- 16. Copyright © 2015, Oracle and/or its affiliates. All rights reserved. | Business Needs 18-‐May-‐18 16 Reporting Requirement Note 2 Year Look Back Lease / Payment Level Amortization Both IFRS and FASB Portfolio Detail Report ROU / Liability by Lease Portfolio Summary Report By Period / Projection Disclosure Reports
- 17. Copyright © 2015, Oracle and/or its affiliates. All rights reserved. | Compliance with IFRS 16 & ASC 842 Background Business Needs Oracle Solution Getting Started… 1 2 3 4 17 18-‐May-‐18
- 18. Copyright © 2015, Oracle and/or its affiliates. All rights reserved. | Copyright © 2018, Oracle and/or its affiliates. All rights reserved. 18 E-‐Business Suite Solution for ASC 842 / IFRS 16 Set yourself up for compliance success, and more Manager Your Equipment Portfolio -‐ Lessors Manage Your Real Estate Portfolio – Tenant and Landlords Manager Your Equipment Portfolio -‐ Lessees Oracle Property Manager Oracle Property Manager (Equipment Functionality) Oracle Lease and Finance Management
- 19. Copyright © 2015, Oracle and/or its affiliates. All rights reserved. | Copyright © 2017, Oracle and/or its affiliates. All rights reserved. | Oracle Property Manager Real Estate
- 20. Copyright © 2015, Oracle and/or its affiliates. All rights reserved. | Copyright © 2017, Oracle and/or its affiliates. All rights reserved. 20 20 • Track data for each floor and space • Manage maximum and optimal levels of occupancy • Manage common, rentable, assignable, and usable areas for each space • Automate space definition with integrated CAD Manage Properties and Space Automate Payments and Billing Compliance Lease Administration • Abstract and manage critical agreements, and other contractual obligations • Automatic notification of lease milestones • Calculation and reconciliation of CAM and other expenses • Calculate rent increases based on indexes • Calculate variable rent on actual or forecasted sales • Generate payments and billings directly into AP or AR • Generate normalized lease accounting transactions in accordance with FAS 13 and IAS 17 • New: Generate normalized lease accounting transactions in accordance with ASC842 and IFRS16 • Portfolio reporting Oracle Property Manager
- 21. Copyright © 2015, Oracle and/or its affiliates. All rights reserved. | Oracle Property Manager •Property Definition •Buildings/Locations •Floors & Offices •Space Assignments •Billing/Payment Terms • CAM, Abatements, Expenses •Lease Terms & Options •Contact Information Common Data Model • Global Architecture • Multi Currency • Multi Language • Shared Services •Global Accounting Architecture General Ledger & Financial Reporting •Global Consolidation •Accounting Transparency •Financial Reporting •Landlord / Supplier Details •Lease Payments •Payables Mgmt. Accounts Payable •Tennant / Customer Details •Lease Billing •Receivables Mgmt Accounts Receivables •Employee Resources •Assignments •Cost Center Human Resources •Associate Project Numbers to Space Assignments Projects Enterprise Asset Management •eAM Assets locations linked to Property Manager locations • Delivered and user configured reports • Ad-‐hoc reporting BI Publisher OBIEE •Revenue/Expense Recognition Oracle Property Manager eBusiness Suite Integration
- 22. Copyright © 2015, Oracle and/or its affiliates. All rights reserved. | E-‐Business Suite Solution for ASC842 / IFRS 16 18-‐May-‐18 22 Property and Equipment Leasing Interest Index • Manage Cost of Funds • Select Lease Class. • Select Index Lease Detail • Determine whether payment in ROU and/or Liability Payment Terms • Determine which renewal options to include ROU and Liability Renewal Options Transaction Values • Booking • Payments • Accruals • Amendments • Etc… Transactions: ROU/Liability/ Amortizations SLA -‐> GL Streams & Pricing Booking & Amendments Transactions Reporting Asset • Capture Asset Details Property Equipment
- 23. Copyright © 2015, Oracle and/or its affiliates. All rights reserved. | 18-‐May-‐18 23 Lease Screen Property Leasing under ASC842/IFRS16 Select the rate cost of funds index used to PV the payments Determine whether finance lease, operating lease, both, or none (low value) Adjust index rate for specific contract
- 24. Copyright © 2015, Oracle and/or its affiliates. All rights reserved. | 18-‐May-‐18 24 Payment Term Details Property Leasing under ASC842/IFRS16 For each payment select whether to include in ROU Asset and/or Liability (defaults from term template)
- 25. Copyright © 2015, Oracle and/or its affiliates. All rights reserved. | 18-‐May-‐18 25 Options Property Leasing under ASC842/IFRS16 Enhanced options, including ability to include in ROU asset / Liability
- 26. Copyright © 2015, Oracle and/or its affiliates. All rights reserved. | Streams / Amortizations • Generate/Regenerate Streams – Generate/Regenerate streams at contract activation for: • Right of Use • Lease Liability • Interest Expense • Amortization Expense for Right of Use • Lease expense 18-‐May-‐18 26 Key Concepts Portfolio Detail Report Lease detail Report Create Contract Approve Contract Activate Contract Generate Streams New Contract Stream: Interest Expense Stream: Lease Liabilty Date Amount Accounted Date Amount Accounted 1-‐Feb-‐18 38.48 Y 1-‐Feb-‐18 12,579.18 Y 1-‐Mar-‐18 40.86 Y 1-‐Mar-‐18 12,067.21 Y 1-‐Apr-‐19 37.86 N 1-‐Apr-‐19 11,552.24 N 1-‐May-‐19 37.37 N 1-‐May-‐19 11,036.78 N … … … … … …
- 27. Copyright © 2015, Oracle and/or its affiliates. All rights reserved. | 18-‐May-‐18 27 Streams / Amortizations Amortization created at lease/pmt term level (asset or property) for IFRS and FASB
- 28. Copyright © 2015, Oracle and/or its affiliates. All rights reserved. | Stream: Lease Liabilty Date Amount Accounted 1-‐Feb-‐18 12,579.18 Y 1-‐Mar-‐18 12,067.21 N 1-‐Apr-‐19 11,552.24 N 1-‐May-‐19 11,036.78 N … … … Accounting • Drive Accounting based on – Accounting Events (e.g. contract activation) – Period End Process • Amounts used for Accounting – Stream amounts and dates • Account Derivation – Accounting sources captured and passed over to Sub ledger Accounting Engine 18-‐May-‐18 28 Event and Streams based Accounting Sub-‐Ledger Accounting Engine Amounts and Dates Streams Contract Information Sources
- 29. Copyright © 2015, Oracle and/or its affiliates. All rights reserved. | Sub-‐Ledger 18-‐May-‐18 29 View of accounting entries created by Property Manager for FASB / IFRS changes
- 30. Copyright © 2015, Oracle and/or its affiliates. All rights reserved. | Reporting • Generate reports – Three reports using BI Publisher • Portfolio Summary Report • Portfolio Detail Report • Lease Detail Report (Amort Schedules) – Report financial results • Liability balance with payment & interest accrual • ROU asset balance with amortization – Compare accounting methods • Finance lease • Operating lease 18-‐May-‐18 30 Solution overview Portfolio Summary Report Portfolio Detail Report Lease detail Report
- 31. Copyright © 2015, Oracle and/or its affiliates. All rights reserved. | Look Back Compliance • Archive historical data – Create an audit trail – Produce consistent results – Use archived history for “As of Date” – Based on reproducible data 18-‐May-‐18 31 Solution overview Reports PN Tables -‐ Data Model
- 32. Copyright © 2015, Oracle and/or its affiliates. All rights reserved. | Copyright © 2017, Oracle and/or its affiliates. All rights reserved. | Oracle Property Manager Equipment
- 33. Copyright © 2015, Oracle and/or its affiliates. All rights reserved. | EBS Solution for Equipment Leasing for Lessee • Equipment leasing for lessee leveraging Property Manager capability • Available to Financials customers as part of Financials license 33 Interest Index Lease Detail Amortization Schedules & Accounting Entries Asset Property Equipment Payment Terms Renewal Options Roadmap 12.1.3 & 12.2
- 34. Copyright © 2015, Oracle and/or its affiliates. All rights reserved. | 18-‐May-‐18 34 Lease data is logically organized under each tab for Contract Header, Lease Parties, Asset Details, Payments and Lease Options
- 35. Copyright © 2015, Oracle and/or its affiliates. All rights reserved. | 18-‐May-‐18 35 Select the rate cost of funds index used to PV the payments Determine whether finance lease, operating lease, both, or none (low value) Adjust index rate for specific contract
- 36. Copyright © 2015, Oracle and/or its affiliates. All rights reserved. | Equipment Leasing under ASC842/IFRS16 18-‐May-‐18 36 Asset Screen Capture asset details and location
- 37. Copyright © 2015, Oracle and/or its affiliates. All rights reserved. | 18-‐May-‐18 37 Lease Payment Term Detail Screen Equipment Leasing under ASC842/IFRS16 Payments at the asset level Identify if lease payment should be included in the ROU Asset and/or Lease Liability calculation
- 38. Copyright © 2015, Oracle and/or its affiliates. All rights reserved. | 18-‐May-‐18 38 Asset Level Options Support for multiple option types (e.g. residual, renewal, termination, etc.) Dates and amounts of renewals Currency for each renewal
- 39. Copyright © 2015, Oracle and/or its affiliates. All rights reserved. | Copyright © 2017, Oracle and/or its affiliates. All rights reserved. | Oracle Lease and Finance Management
- 40. Copyright © 2015, Oracle and/or its affiliates. All rights reserved. | Oracle Lease and Finance Management Leveraging the breadth and depth Oracle Lease and Finance Management •Party Information •Contract Parameters •Asset Information •Fees/Expenses/Services •Financial Products •Lease/Loan Accounting Rules •Streams & Yields •Investor Agreements Common Data Model • Global Architecture • Multi Currency • Multi Language • Shared Services •Global Accounting Architecture Financial Reporting •Global Consolidation • Accounting Transparency • Financial Reporting Risk & Compliance Reporting and Analytics •Asset Accounting •Depreciation •Retirements Asset Accounting •Customer Data •Invoices •Payment Processing Receivables Management •Collections Strategies •Work Queue •Workbench Collections Administration •Vendors •Disbursements •Refunds •Pass-‐through Disbursement Management Inventory & Remarketing •Item Master •Equipment Returns •Used Equipment Sales •Sales •Service •Marketing •Call Center CRM
- 41. Copyright © 2015, Oracle and/or its affiliates. All rights reserved. | Oracle Lease and Finance Management • Lessor accounting remains mostly un-‐touched • Minor changes handled through configuration of existing product • Whitepaper available on Oracle Support 5/18/18 41
- 42. Copyright © 2015, Oracle and/or its affiliates. All rights reserved. | Compliance with IFRS 16 & ASC 842 Background Business Needs Oracle Solution Getting Started… 1 2 3 4 42 18-‐May-‐18
- 43. Copyright © 2015, Oracle and/or its affiliates. All rights reserved. | Available Patches • 12.2 – Patch number: 27606088:R12.PN.C – Documentation: MOS release note -‐ Doc ID 2388210.1 • 12.1.3 – Porting from 12.2 underway – Available shortly • Equipment Leasing – Development almost complete – QA already started – Release coming soon 18-‐May-‐18 43
- 44. Copyright © 2015, Oracle and/or its affiliates. All rights reserved. | Copyright © 2018, Oracle and/or its affiliates. All rights reserved. 44 With Oracle EBS Leasing Solutions Manage ASC 842 / IFRS 16 for Long-‐Term Success by applying new standards to lease transactions by producing disclosures with more insight into balance sheet Sustain Compliance Foster Confident Investors Uncover Insights by exploiting new information to evaluate purchasing, renewals & expenses
- 45. Copyright © 2015, Oracle and/or its affiliates. All rights reserved. | Questions