Upcoming changes in lease accounting standards: How technology can help with costs savings today and regulatory compliance tomorrow
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The way organizations have always managed their leases is about to change. Soon, they will need to start complying with the new accounting standards for lease accounting and reporting from regulations under US GAAP and IFRS, as proposed by the FASB/IASB. With high volumes of complex lease contracts, industries such as telecom, oil & gas, cargo & transportation and construction are some of the most affected industries by the proposed lease accounting standards. For a smooth transition to the new accounting regulations, early preparation is not only recommended, but crucial for successful compliance and costs savings. Operators will need to change their financial reporting processes and systems now to ensure their business could function uninterrupted and in compliance with the new requirements. In this presentation find out: - The steps required to prepare for the upcoming regulatory changes and the time/cost benefits that can be gained by preparing today. - The benefits of optimizing not only your leasing accounting processes, but also transactional processes. - How you can gain visibility into your lease exposure with SAP® Lease Administration by Nakisa®, enabling you to optimize and support accounting processes for more efficient cost controlling and regulatory compliance.
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Upcoming changes in lease accounting standards: How technology can help with costs savings today and regulatory compliance tomorrow
- 1. © 2015 Nakisa Inc. All rights reserved. Upcoming changes in lease accounting standards: How technology can help with costs savings today and regulatory compliance tomorrow #NakisaFIN
- 2. © 2015 Nakisa Inc. All rights reserved. @NakisaInc #NakisaFIN Providing solutions since 2001 Headquartered in Canada Leader in HCM and Financial Solutions 700+ enterprise customers subscribers 4M+ Available in languages 18 Active users located in 125 Caters to 24+ industries countries
- 3. © 2015 Nakisa Inc. All rights reserved. 3 Update on lease accounting regulations Market trends Recommended compliance action plan How technology can help you be compliant SAP® Lease Administration by Nakisa® Key takeaways Agenda #NakisaFIN
- 4. 4© 2015 Nakisa Inc. All rights reserved. Missed the webinar? Listen to the full on-demand webinar Watch now > #NakisaFIN
- 5. © 2015 Nakisa Inc. All rights reserved. 5 Update on lease accounting regulations #NakisaFIN
- 6. 6© 2015 Nakisa Inc. All rights reserved. Pending regulatory changes for leases affecting all lease contracts New IFRS/GAAP standards for Lease Accounting Current reporting of operating leases • Reported off balance sheet • Disclosed in notes of financial statements Upcoming changes • Required to capitalize many of these operating leases • Record in balance sheet as assets and liabilities “The IASB plans to issue the new Leases Standard before the end of 2015.” IFRS Leases Project Update: Practical implications of the new Leases Standard. March 2015 #NakisaFIN
- 7. 7© 2015 Nakisa Inc. All rights reserved. Business pain points Lease administration • Geographically and departmentally dispersed lease contract information, requiring manual processes for data management. • Lack of visibility into lease data, due to large volume of equipment and property lease contracts. • No ability to conform to the upcoming lease accounting standards. • No ability to efficiently manage leases now or for the long term, resulting in unnecessary costs. • No ability to conduct what-if scenarios or impact analysis, for sound lease-versus-buy decisions. 7© 2015 Nakisa Inc. All rights reserved.#NakisaFIN
- 8. 8© 2015 Nakisa Inc. All rights reserved. Webinar poll Do you expect the leasing regulation will have an impact on your financial ratios?
- 9. 9© 2015 Nakisa Inc. All rights reserved. Expected impact of lease accounting standard Source: Deloitte. Lease accounting survey. Preparing for implementation. 2014 #NakisaFIN
- 10. 10© 2015 Nakisa Inc. All rights reserved. Industry impact Retail Leased assets: • Real estate • Equipment Challenges: • Lack of awareness of the impact • High amount of individual and dispersed lease contracts • Currently no IT systems to manage contracts Telecom Leased assets: • Real estate • Equipment Challenges: • Reassess operating leases vs. service contracts • 2 new accounting standards that will impact accounting processes and require contract data abstraction • IT systems for data capture and reporting required Cargo & Transportation Leased assets: • Real estate • Equipment Challenges: • High amount of operating leases currently not reported on balance sheet • Lack of awareness of the impact • IT systems for data capture and reporting #NakisaFIN
- 11. © 2015 Nakisa Inc. All rights reserved. 11 Market trends A closer look at leasing and industry trends #NakisaFIN
- 12. 12© 2015 Nakisa Inc. All rights reserved. Leasing market 2015 Volume of equipment to be leased in 2015 expected to increase Market conditions are positive and new opportunities are emerging Upcoming change in lease accounting regulations Investment in equipment to replace aging assets and aid in expansion #NakisaFIN
- 13. 13© 2015 Nakisa Inc. All rights reserved. Webinar poll Approximately how many leased assets do you have in your organization
- 14. © 2015 Nakisa Inc. All rights reserved. 14 Recommended compliance action plan #NakisaFIN
- 15. © 2015 Nakisa Inc. All rights reserved. Source: Deloitte. Lease accounting survey. Preparing for implementation. 2014 Compliance will require companies to undertake a variety of activities in such areas as lease data collection, reporting, IT systems, technical accounting, and training, as well as overall program management of the implementation process. “ #NakisaFIN
- 16. 16© 2015 Nakisa Inc. All rights reserved. Compliance action plan 16© 2015 Nakisa Inc. All rights reserved.#NakisaFIN
- 17. 17© 2015 Nakisa Inc. All rights reserved. Webinar poll What stage of the compliance action plan are you currently at?
- 18. © 2015 Nakisa Inc. All rights reserved. 18 How technology can help you be compliant #NakisaFIN
- 19. 19© 2015 Nakisa Inc. All rights reserved. 19© 2015 Nakisa Inc. All rights reserved. What to look for in lease administration software? 1. Unified database for all lease operations 2. Collaboration during the process of data collection 3. Strategic insight for sound decision- making 4. User-friendly interface with minimum training required 5. A solution that adapts to your business #NakisaFIN
- 20. 20© 2015 Nakisa Inc. All rights reserved. Solution capabilities for abstraction of lease contracts SAP® Lease Administration by Nakisa® Increased visibility Collection and Unification Validation and Traceability Collaboration Collection & unification Designed to provide visibility into your lease and revenue contract exposure Automated and effective data collection Unification of data in one single repository Collaboration Open collaboration framework to engage and align business decision- makers Simulation capabilities to analyze best response to business changes Efficiently evaluate lease vs. buy scenarios Validation & traceability Validated true and useful data Efficient traceability for compliance Readiness for reporting requirements #NakisaFIN
- 21. © 2015 Nakisa Inc. All rights reserved. 21 SAP® Lease Administration by Nakisa® Overview #NakisaFIN
- 22. 22© 2015 Nakisa Inc. All rights reserved. Leasing Administration requirements overview Five major use cases Lessor Lessee Available today SAP Real Estate Management SAP Leasing No standard solution SAP Lease Administration by Nakisa Leasing Property Non-Property 1 2 3 4 5 #NakisaFIN
- 23. 23© 2015 Nakisa Inc. All rights reserved. Leasing Administration requirements overview Five major use cases Lessor Lessee Planned innovations SAP Real Estate Management SAP Leasing SAP Lease Administration by Nakisa SAP Lease Administration by Nakisa Leasing Property Non-Property 1 2 3 4 5 #NakisaFIN
- 24. 24© 2015 Nakisa Inc. All rights reserved. Accounting and financial close process Reporting and Analysis Entity Close Management Disclosure Management Notes Management Consolidation Intercompany Reconciliation General Ledger Sub-Ledger Revenue Recognition Leasing Financial Accounting Entity Close Corporate Close Reporting & Disclosure Internal Controls Master Data Governance for Financials Financial Close Governance #NakisaFIN
- 25. 25© 2015 Nakisa Inc. All rights reserved. Solution focus areas for lessee administration SAP® Lease Administration by Nakisa® I. Document Management and User Interaction II. Payment Processing and Invoice Reconciliation III. Asset Accounting: Creation, Update, Retirement IV. Management Reporting and Analysis #NakisaFIN
- 26. 26© 2015 Nakisa Inc. All rights reserved. Dashboard component #NakisaFIN
- 27. 27© 2015 Nakisa Inc. All rights reserved. Lease administration system • Enter and administer leases • Track lease changes (modifications, activations, terminations) • Approvals of financing terms • Manage events during operation of a lease #NakisaFIN
- 28. 28© 2015 Nakisa Inc. All rights reserved. Key benefits 1. Integrated with SAP ERP Financials 2. Prepare for upcoming Lease Accounting regulations 3. Costs and time savings through greater visibility and improved decision making 4. Centralizes the administration of Capital and Operating leases 5. Addresses lease administration concerns: • Casualties • Refinancing • Services charges • Asset info updates • Invoice reconciliation • Payment alerts • Approval processes #NakisaFIN
- 29. 29© 2015 Nakisa Inc. All rights reserved. Co-innovation model Phase 1: Engage Phase 2: Prototype Phase 3: Deliver • Meetings with SME • Documentation of processes • Documentation of requirements • Unification of requirements • Functional & technical validation Customers • Feedback • Solution design • Sign off to next stage (agree to keep going) • Use cases/ user stories • Solution design Multiple customer feedback consolidation • Functional validation • Roadmap & partner endorsement • Expertise • Prototype/mockups • Documentation • Testing platform • Organize testing/review • Prototype validation • Feedback/re-validation • Prototype improvement • Engineering preparation • Solution architecture • Technology leadership • Development • QA • Documentation • Execute POC • Run use cases • Feedback Evaluate feedback Product on SMP Prototype construction Testing Requirements gathering Requirements validation Engineering PoC Product on SMP Estimated duration 6 – 12+ months1 – 3+ months1 - 3+ months NDA Pre-requisites Nakisa Solutions SAP engaged where applicable #NakisaFIN
- 30. © 2015 Nakisa Inc. All rights reserved. 30 Key takeaways #NakisaFIN
- 31. 31© 2015 Nakisa Inc. All rights reserved. Key takeaways Be prepared Lease Accounting standards are expected to be announced in 2015 Ensure readiness for compliance, including reviewing your parallel reporting strategy Collect and centralize your lease contracts Supports on-premise and cloud deployment (HANA Cloud Platform) #NakisaFIN
- 32. 32© 2015 Nakisa Inc. All rights reserved. Missed the webinar? Listen to the full on-demand webinar Watch now > #NakisaFIN
- 33. 33© 2015 Nakisa Inc. All rights reserved. Next steps WHITEPAPER Getting smart about revenue recognition and lease accounting www.nakisa.com/whitepapers-revenue-recognition-lease-accounting WEBINAR New revenue recognition standards: What the rule changes mean for your business www.nakisa.com/webinar-revenue-recognition-standards Contact us: nakisa@nakisa.com #NakisaFIN
- 34. 34© 2015 Nakisa Inc. All rights reserved. © 2015 Nakisa Inc. All rights reserved. The information in this presentation is confidential & proprietary to Nakisa, & may not be disclosed without the permission of Nakisa. This presentation is not subject to your license agreement or any other service or subscription agreement with Nakisa. Nakisa have no obligation to pursue any course of business outlined in this document or any related presentation, or to develop, release or implement any functionality mentioned therein. This document, or any related presentation & Nakisa’s strategy & possible future developments, products & or platforms directions & functionality are all subject to change & may be changed by Nakisa at any time for any reason without notice. The information in this document is not a commitment, promise or legal obligation to deliver any material, code or functionality. This document is provided without a warranty of any kind, either express or implied, including but not limited to, the implied warranties of merchantability, fitness for a particular purpose, or non-infringement. This document is for informational purposes & may not be incorporated into a contract. Nakisa assume no responsibility for errors or omissions in this document, except if such damages were caused by Nakisa intentionally or grossly negligent. All forward-looking statements are subject to various risks & uncertainties that could cause actual results to differ materially from expectations. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of their dates, & they should not be relied upon in making purchasing decisions. #NakisaFIN
Editor's Notes
- Pete
- Pete – 30 mins
- Deloitte survey: Executives at companies that are lessees were more likely than real estate lessors to anticipate impacts in many areas. For example, roughly two-thirds of executives from equipment and real estate lessees expect major or significant impacts on their balance sheet compared to 43 percent for real estate lessors. Similarly, roughly half the executives from companies that are lessees expect major or significant impacts on their company’s financial ratios, while only 32 percent of those from real estate lessors agreed
- Retail: lease-intensive industry real estate, equipment, IT and other infrastructure Challenges (EPRA - European Public Real Estate Association survey): Awareness: The majority of retailers interviewed was unaware of the comprehensive impacts of the proposed lease accounting standard and/or had not yet discussed these potential impacts with their board of directors. Only one of the 18 retailers interviewed had already carried out a detailed assessment of the impact of the proposed lease standard on their business organisation and discussed the potential impacts with their board of directors. The main challenge for the majority of retailers interviewed was to find time and resources to raise awareness with the wider functions within their entity (e.g. IT, Treasury, Tax, Real Estate) and to dedicate resource to the assessment of the implications. Individual contracts: Most retailers have indicated that they do not have standard leases with landlords and their leases are often individually material. This makes a portfolio approach to the implementation and periodic re-assessment of estimates virtually impossible. The amount of staff time and costs that would be needed to review leases and account for them on an ongoing basis, taking into account the periodic re-assessment of estimates, are expected to be highly significant. Currently no IT systems to manage contracts All retailers interviewed expected to have to modify their property or ERP system or implement an IT solution to capture the necessary information for the proposed lease standard. Although retailers expect significant costs for the modification of their IT environment, they expect that the most significant implementation costs will result from the required changes in processes and controls around leases, more particularly around renewal options and contingent rents and their periodic re-assessment Telecom: 2 new accounting standards that will impact accounting processes and require contract data abstraction Reassess operating leases vs. service contracts: Only off-balance sheet reporting for leases with max. term of 12 months Arrangements for use of equipment that have been treated as operating leases or service contracts will need to be reassessed Classifying leases will be time consuming and require judgements to be made i.e. contract elements will need to be unbundled to separate lease components from service elements IT systems for data capture and reporting Systems to capture all data required by the new standard Given the number of leases and capacity arrangements held by telco operators, this could involve significant resource Systems should allow for collaboration between finance and operating teams Cargo & Transportation: Operating leases: High percentage of operational leases currently not reported on balance sheet within the transportation industry. The impact on debt to equity ratios will be significant “Capitalizing operating leases will add an estimated $2 trillion -- and 11% more reported debt -- to the balance sheets of US-based corporations.” (Equipment leasing & Finance Foundation) ------------------------ Sources: http://www.epra.com/media/Impact_on_tenant_of_prop._Lease_Accounting_Standard_-_EPRA.pdf
- Volume of leased equipment in 2015 expected to increase, but at lower growth rate than in coming years Study “What’s hot, what’s not” by IEC (Independent Equipment Company) and ELFA (Equipment Leasing and Finance Association) In 2014, equipment and software investment increased 9.6% in Q2 and 9.3% in Q3. Looking ahead, growth in equipment and software investment is expected to moderate somewhat, as it is unlikely to keep up the strong pace seen in Q2 and Q3 A still healthy growth rate of 6% is forecast for 2015. Aircraft, trucks and other industrial equipment are projected to be among the higher growth types, while agriculture, computers and software are expected to see slower growth A final lease accounting standard will be released The Financial Accounting Standards Board and the International Accounting Standards Board continue to work on the lease accounting project, which will change how leases are accounted for on corporate balance sheets A final standard is anticipated in 2015, with a possible effective date of 2018 or later Businesses will invest in equipment not just to replace aging assets, but also to aid in expansion (http://www.equipmentfinanceadvantage.org/rsrcs/articles/10trends.cfm) The pent-up replacement demand that has driven equipment investment in previous years may be supplemented by expansion investment as capacity utilization rates in some industries reach or surpass levels historically known to spur business investment. Industries poised for investment growth include oil and gas extraction and transportation equipment manufacturing.
- http://www.leasing-101.com/articles/article%20lessee%20action%20plans.pdf
- Unified database for all lease operations Organizations should aim to build a comprehensive lease portfolio by centralizing lease data in a single repository. This approach provides excellent access, visibility, and traceability regarding critical issues, such as lease composition, key lifecycle dates, the value of leased assets, and responsible organizational units. Collaboration during the process of data collection The right technology should offer the entire organization (not jut a single user) the abilities to track changes and understand who made those. Collaboration tools are essential to empower all stakeholders to easily validate contracts for leased assets and better understand all the associated legal, financial, and business implications. Strategic insight for sound decision-making Executives need to be able to analyze the financial implications on the business of current and proposed lease accounting regulations, in order to make more informed decisions. Therefore, it’s important to use a tool that can provide rich analytics and visibility into the portfolio composition by different dimensions and provide “what-if” scenario analysis to identify opportunities to efficiently manage leases. User-friendly interface with minimum training required The new accounting regulations are approaching fast and many compliance processes are very time consuming. With this in mind, your accounting team needs to be able to hit the ground running with a solution that requires a minimum of training. It’s very important to look for a solution that allows for efficient management of lease administration in a user-friendly, visual format that is easy to learn and use. A solution that adapts to your business Integration with your current systems and flexibility to address your specific business are key technical requirements for the right solution. The solution should also enable a smooth transition to the new required processes and controls by the accounting and finance departments.
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