getting started with lease accounting for assets for

Copyright © 2019, Oracle and/or its affiliates. All rights reserved. |

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


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


Solution Overview

4


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

5

FASB ASC 842 and IFRS 16 Leases


Lease Accounting StandardAre you affected?

Other

Real EstateOil and Gas

Agribusiness

Engineering and Construction

Manufacturing & Distribution

6


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


Lessee Lease Accounting Standard

Old Standard:

8

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


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

Copyright © 2019, Oracle and/or its affiliates. All rights reserved. | 10

Where Lease Accounting Fits in JD Edwards EnterpriseOne

Solution Overview

Lease processing available in Real Estate

Management

Finance principles in

Financial Management

Lease Accounting


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.

11

Generally Available


Adjustments to Balance Sheet

Accounts

Recurring Billing for Leases

12

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


Our Scenario

13


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.

14


Steps to Implement the SolutionSeth Chaikin – Grant Thornton

15

#JDEINFOCUS

Grant Thornton

Office locations

Reach

Our services

59 offices spread across 30

states and Washington D.C.

Serve 36% of companies on the

2017 Fortune 500 list and 25% of

companies on the Russell 2000 list

• Assurance • Tax • Advisory

PeopleMore than 8,500

professionals in the U.S.

Partners594 partners serving more

than 8,000 clients in the nation

RevenueGT U.S. net revenue equals

$1.74 billion

stats are as of 07/31/2017

Our Oracle practiceCreating business harmony in the cloud

Find your silver lining

gt.com/silverlining

17

#JDEINFOCUS

About Grant Thornton JDEJD Edwards practice

•Specialized functional

resources

•Project management office

• Implementations

•Upgrades

•Mobile applications

•Third party integration

architecture

•Business process re-

engineering

•Managed services (functional)

•User materials and training

•CNC

•Development

•Workflow

•Security management

•Technical management

•Database management

• Infrastructure / hosting

•Managed services

(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

Upgrades

•Gap assessment

•Transformation

• Industry point of view

•Proven methodologies

•Process excellence

•Benchmarking

•ERP governance

•Data governance

•Master data management

•Reporting strategy

Project management and functional

expertise

Technical

Trusted business advisor

•Financials

•Distribution

•Manufacturing

•HR / Payroll

•CAM

•Project advisory

•Private cloud

•Disaster recovery

•Security

•Development (FRICE)

•Change management

•Cloud roadmap / strategy

•FASB planning

•Chart of accounts

optimization


Impact to the business

The new standards will drive changes to the business in several areas

19

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


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


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


Basic Setup

22


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


P1510 – Real estate constants

Default values used when creating a new

lease

24


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



26



27


Accounts for the new Lease Accounting accounts

28

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


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


Billing Frequencies

30


Fixed Asset Defaults

31


Setup Lessor as a supplier – Address Book

32


Processing Options - Lease master (P1501)

Processing option to offer a separation of

duties: Lease Administrator and

Accounting Manager

33


Processing Options – Recurring Billing (P1502)

34

Processing Options to determine ability to

change data and notify users of changes


Processing Options – Manual Billing (P1511)

35

Processing option to determine if changes are

permitted


Processing Options –Lease Amortization Schedules (P15171)

36


Processing Options – Lease Commencement (R15170)

37


Processing Options – Balance Sheet Lessee Accounting Journals (R15180)

38



39



• 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

40

What we will cover

Demo

http://denac138.us.oracle.com:25067/jde/E1Menu.maf?jdeowpBackButtonProtect=PROTECTED


Resources

41


Search using ‘Lease Management’ on LearnJDE.com to Learn More

Lease Management


Content Organized by Role: Decision Maker, Implementer,

User

43

Key Benefits

Description and Quick Tour

Be aware of the MORE/LESS Option


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

https://docs.oracle.com/cd/E64610_01/EOARM/toc.htm

https://docs.oracle.com/cd/E84502_01/learnjde/financial_management.html#lease-management

FASB.org

IASB.org


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