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©	
  LeaseAccelerator	
  Inc.	
  2015.	
  All	
  rights	
  Reserved.	
  Not	
  for	
  Distribution.
FASB  &  IFRS  Lease  ...
Lease	
  Accounting	
  Standard	
  Changes
• The	
  FASB	
  &	
  IASB	
  are	
  in	
  final	
  deliberations	
  of	
  issu...
Lease	
  Accounting	
  Standard	
  Changes
March	
  
2009
August	
  
2010
May
2013
TODAY End
2015
Date	
  of	
  Initial	
 ...
Lease	
  Accounting	
  Standard	
  Changes
If	
  your	
  year	
  end	
  is: You	
  will	
  likely	
  transition	
  to	
  t...
Lease	
  Accounting	
  Standard	
  Changes
Other	
  Reporting	
  Companies	
  Reg.	
  S-­‐X	
  [3-­‐01,	
  3-­‐ 02,	
  3-­...
Lease	
  Accounting	
  Standard	
  Changes
If	
  your	
  year	
  end	
  is: You	
  will	
  have	
  a	
  comparative	
  par...
Lease	
  Accounting	
  Standard	
  Changes
If	
  your	
  year	
  end	
  is: You	
  will	
  have	
  a	
  comparative	
  par...
Lease	
  Accounting	
  Standard	
  Changes
Lessee Accounting
FASB: IFRS:
• Dual	
  lease	
  accounting	
  model	
  (Type	
...
Lease	
  Accounting	
  Standard	
  Changes
Lessee Accounting
FASB: IFRS:
• Reassessment	
  of	
  Lease	
  Term	
  only	
  ...
Agreements	
  with	
  Lease	
  and	
  Non-­‐Lease	
  Components	
  
When	
  there	
  is	
  an	
  observable	
  
standalone...
Agreements	
  with	
  Lease	
  and	
  Non-­‐Lease	
  Components	
  
Taxes	
  and	
  insurance	
  on	
  the	
  
property
Ac...
Lease	
  Term	
  is	
  equal	
  to:	
  
Non-­‐cancellable	
  period
Optional	
  renewal	
  periods	
  if	
  
lessee	
  rea...
Lease	
  Accounting	
  Standard	
  Changes
Proposed	
  FASB	
  Lease	
  Classification	
  Tests:
FASB	
  	
  “reinstated”	...
Lease	
  Accounting	
  Standard	
  Changes
©	
  LeaseAccelerator	
  Inc.	
  2015.	
  All	
  rights	
  Reserved.	
  Not	
  ...
©	
  LeaseAccelerator	
  Inc.	
  2015.	
  All	
  rights	
  Reserved.	
  Not	
  for	
  Distribution.
Same	
  – say	
  Jan	
...
©	
  LeaseAccelerator	
  Inc.	
  2015.	
  All	
  rights	
  Reserved.	
  Not	
  for	
  Distribution.
Same	
  – say	
  Jan	
...
Lease	
  Accounting	
  Standard	
  Changes
Other	
  Important	
  Items	
  Not Discussed	
  Today:
• Definition	
  of	
  a	...
Lease	
  Accounting	
  Standard	
  Changes
Issues	
  frequently	
  overlooked	
  in	
  publications
• System	
  and	
  res...
Lease	
  Accounting	
  Standard	
  Changes
An	
  approach	
  to	
  simplifying	
  what	
  is	
  required.
1. What	
  would...
Lease	
  Accounting	
  Standard	
  Changes
1.	
  Challenges	
  today if	
  all	
  operating	
  leases	
  had	
  to	
  be	
...
Lease	
  Accounting	
  Standard	
  Changes
2.	
  Additionalrequirements	
  or	
  changes	
  with	
  future	
  rules?	
  	
...
Lease	
  Accounting	
  Standard	
  Changes
3.	
  What	
  is	
  required	
  for	
  the	
  transition	
  period?
• Multiple	...
Lease	
  Accounting	
  Standard	
  Changes
http://www.ifrs.org/Current-­‐Projects/IASB-­‐Projects/Leases/Documents/Practic...
©	
  LeaseAccelerator	
  Inc.	
  2015.	
  All	
  rights	
  Reserved.	
  Not	
  for	
  Distribution.
More	
  Information
Do...
©	
  LeaseAccelerator	
  Inc.	
  2015.	
  All	
  rights	
  Reserved.	
  Not	
  for	
  Distribution.
Thank	
  You
Web: www....
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New Lease Accounting Standards - FASB 842 and IFRS 16

Provides an overview of the new lease accounting standards released by FASB and IASB. Describes differences between new standards (FASB 842 and IASB 16) as compared to prior standards (FASB 840 and IASB 17). Explains implementation timeframes and transition reporting requirements. Focuses on equipment lease accounting versus real estate accounting.

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New Lease Accounting Standards - FASB 842 and IFRS 16

  1. 1. ©  LeaseAccelerator  Inc.  2015.  All  rights  Reserved.  Not  for  Distribution. FASB  &  IFRS  Lease  Accounting   Standard  Changes
  2. 2. Lease  Accounting  Standard  Changes • The  FASB  &  IASB  are  in  final  deliberations  of  issuing  new  lease   accounting  standards  by  replacing  FAS  13/IAS  17. • One  converged  standard  has  been  dropped.   • The  leasing  standards  objective  is  to  capitalize  all  material   leases  on  lessee’s  books. • The  lessee  will  account  for  the  lease  contract’s  rights  &   obligations  as  assets  &  liabilities. ©  LeaseAccelerator  Inc.  2015.  All  rights  Reserved.  Not  for  Distribution.
  3. 3. Lease  Accounting  Standard  Changes March   2009 August   2010 May 2013 TODAY End 2015 Date  of  Initial   Application   Jan  1,  2017   (*) 2019 TRANSITION Discussion Paper Exposure Draft Second Exposure Draft Planning Final Standard Parallel Reporting Effective Date  for Implementation >>> ©  LeaseAccelerator  Inc.  2015.  All  rights  Reserved.  Not  for  Distribution. (*)  For  Companies  with  December  31,  year  ends
  4. 4. Lease  Accounting  Standard  Changes If  your  year  end  is: You  will  likely  transition  to  the  new  rules  in  your   financial  statements  for  the  year  ended:   December  31 December  31,  2019   March  31 March  31,  2020 June  30 June  30,  2020 September  30 September  30,  2020 ©  LeaseAccelerator  Inc.  2015.  All  rights  Reserved.  Not  for  Distribution. IFRS:   Early  application  permitted  but  only  if  the  entity  is  also  applying  IFRS  15  Revenue   from  contracts  with  customers.    Subtract  1  year  from  this  slide  and  all  following   slides. FASB:   Waiting  on  Decision
  5. 5. Lease  Accounting  Standard  Changes Other  Reporting  Companies  Reg.  S-­‐X  [3-­‐01,  3-­‐ 02,  3-­‐04] • Balance  Sheet: 2  fiscal  year-­‐ends • Income  Statement: 3  years Source: http://www.sec.gov/divisions/corpfin/cffinancialreportingmanual.pdf SEC  Reporting  Requirements: ©  LeaseAccelerator  Inc.  2015.  All  rights  Reserved.  Not  for  Distribution.
  6. 6. Lease  Accounting  Standard  Changes If  your  year  end  is: You  will  have  a  comparative  parallel  Balance  Sheet   for  transition  to  the  new  rules  for  the  year  ended:   December  31 B/S:    Dec  31  2018,  2019   March  31 B/S:    Mar  31  2019,  2020 June  30 B/S:    June  30  2019,  2020 September  30 B/S:    Sept  30  2019,  2020 ©  LeaseAccelerator  Inc.  2015.  All  rights  Reserved.  Not  for  Distribution.
  7. 7. Lease  Accounting  Standard  Changes If  your  year  end  is: You  will  have  a  comparative  parallel  Income   Statement for  transition  to  the  new  rules  for  the   year  ended:   December  31 I/S:  Dec  31  2017,  2018,  2019 March  31 I/S:  Mar  31  2018,  2019,  2020 June  30 I/S:  June  30  2018,  2019,  2020 September  30 I/S:  Sept  30  2018,  2019,  2020 ©  LeaseAccelerator  Inc.  2015.  All  rights  Reserved.  Not  for  Distribution.
  8. 8. Lease  Accounting  Standard  Changes Lessee Accounting FASB: IFRS: • Dual  lease  accounting  model  (Type  A   and  Type  B  terminology   replaced  with   finance  lease  and  operating  lease). However,  both  now  capitalized. • Single  lease  accounting  model   • FASB  “reinstated”  the  75%  of  useful   life  and  90%  of  fair  value  “bright   lines”  in  the  lease  classification   guidance.       • No  lease  classification  test • Operating  leases  treated  as  executory   contract  in  P&L,  but  now  capitalized. • All  leases  treated  as  purchase  of  ROU   asset  on  a  financed  basis  (i.e.  all   leases  are  Finance  Leases) • No  exemption  for  small  leases • Exemption  for  small  leases  even  if   material  in  the  aggregate ©  LeaseAccelerator  Inc.  2015.  All  rights  Reserved.  Not  for  Distribution.
  9. 9. Lease  Accounting  Standard  Changes Lessee Accounting FASB: IFRS: • Reassessment  of  Lease  Term  only   upon  the  occurrence  of  a  significant   event  or  a  significant  change  in   circumstances  that  are  within  the   control   of  the  lessee • Same • Reassessment  only  required  when  the   lease  payments  are  re-­‐measured  for   other  reasons • Required  to  reassess  when  there  is  a   contractual  change  and  when  the   lease  payments  are  re-­‐measured  for   other  reasons • Other  Differences  include:    Subleases,  Sale  Lease  Backs  and  Transition  rules. ©  LeaseAccelerator  Inc.  2015.  All  rights  Reserved.  Not  for  Distribution.
  10. 10. Agreements  with  Lease  and  Non-­‐Lease  Components   When  there  is  an  observable   standalone  price  for  each   component  or When  there  is  not  an  observable   standalone  price  for  some  or  all   components   Separate  and  allocate  based  on   relative  standalone  price  of   components  – maximize  the  use   of  observable  information  but   reasonable  estimates  allowed   ©  LeaseAccelerator  Inc.  2015.  All  rights  Reserved.  Not  for  Distribution. Lease  Accounting  Standard  Changes
  11. 11. Agreements  with  Lease  and  Non-­‐Lease  Components   Taxes  and  insurance  on  the   property Accounting  policy  election  by   class  of  underlying   asset   Activities  (or  costs  of  the  lessor)   that  do  not  transfer  a  good  or   service  to  the  lessee  are  not   components  in  a  contract   Account  for  lease  and  non-­‐ lease   components  together  as  a  single   lease  component   ©  LeaseAccelerator  Inc.  2015.  All  rights  Reserved.  Not  for  Distribution. Lease  Accounting  Standard  Changes
  12. 12. Lease  Term  is  equal  to:   Non-­‐cancellable  period Optional  renewal  periods  if   lessee  reasonably  certain  to   exercise Periods  after  optional   termination  date  if  lessee   reasonably  certain  not  to   exercise termination  option ©  LeaseAccelerator  Inc.  2015.  All  rights  Reserved.  Not  for  Distribution. Lease  Accounting  Standard  Changes
  13. 13. Lease  Accounting  Standard  Changes Proposed  FASB  Lease  Classification  Tests: FASB    “reinstated”  the  75%  of  useful  life  and  90%  of  fair  value  “bright  lines”  in  the  lease  classification   guidance. Is  the  lease  a  financed  purchase  or  a  rental  based  on  IAS  17  like  risks  and  rewards  tests:    lessee  would   effectively  obtain  control  of  the  underlying  asset  when  any  oneof  the  following  three    criteria  is  met  at   lease  commencement:   (a) The  lease  transfers  ownership  of  the  underlying  asset  to  the  lessee  by  the  end  of  the  lease  term.   (b) The  lessee  has  a  significant  economic  incentive  to  exercise  an  option  to  purchase  the  underlying   asset  .   (c) The  lessee  otherwise  has  the  ability  to  obtain  substantially  all  of  the  remaining  benefits  of  the   underlying  asset  as  a  result  of  the  lease.  Situations  that  individually   or  in  combination  would   normally  indicate  that  the  lessee  has  the  ability  to  obtain  substantially  all  of  the  remaining  benefits   of  the  underlying  asset  as  a  result  of  the  lease  include:   i. The  lease  term  is  for  a  major  part  of  the  remaining  economic  life  of  the  underlying  asset.   ii. The  sum  of  the  present  value  of  the  lease  payments  and  any  residual  value  guaranteed  by  the   lessee  amounts  to  substantially  all  of  the  fair  value of  the  leased  asset.   iii. The  underlying  asset  is  of  such  a  specialized  nature  that  it  is  expected  to  have  no  alternative   use  to  the  lessor  at  the  end  of  the  lease  term.”   ©  LeaseAccelerator  Inc.  2015.  All  rights  Reserved.  Not  for  Distribution.
  14. 14. Lease  Accounting  Standard  Changes ©  LeaseAccelerator  Inc.  2015.  All  rights  Reserved.  Not  for  Distribution. Proposed  Transition  relief:
  15. 15. ©  LeaseAccelerator  Inc.  2015.  All  rights  Reserved.  Not  for  Distribution. Same  – say  Jan  1,  2017 No  need  to  re-­‐test  classification. Same  – say  Jan  1,  2019 Same  – starting  Jan  1,  2019 Compared  to  NOT  elected. Lease  Accounting  Standard  Changes
  16. 16. ©  LeaseAccelerator  Inc.  2015.  All  rights  Reserved.  Not  for  Distribution. Same  – say  Jan  1,  2017 Need  to  re-­‐test  classification. Same  – say  Jan  1,  2019 Same  – starting  Jan  1,  2019 Compared  to  elected. Lease  Accounting  Standard  Changes
  17. 17. Lease  Accounting  Standard  Changes Other  Important  Items  Not Discussed  Today: • Definition  of  a  lease • Service  contracts  with  Embedded  Leases   • Exemptions  and  practical  expedients  (short   term,  small  ticket,  portfolio  level) • Transition  Rules  (FASB:  modified  retrospective   only.    Full  retrospective  not  permitted.) ©  LeaseAccelerator  Inc.  2015.  All  rights  Reserved.  Not  for  Distribution.
  18. 18. Lease  Accounting  Standard  Changes Issues  frequently  overlooked  in  publications • System  and  resource  requirements • Deferred  Tax  Accounting • Increased  need  for  asset  level  data • Increased  audit  scrutiny  as  now  on   balance  sheet ©  LeaseAccelerator  Inc.  2015.  All  rights  Reserved.  Not  for  Distribution.
  19. 19. Lease  Accounting  Standard  Changes An  approach  to  simplifying  what  is  required. 1. What  would  challenges  be  today if  all   operating  leases  had  to  be  capitalized  under   existing  US  GAAP  /  IFRS  for  capital  leases?   2. What  are  additional  requirements  or  changes   with  future  US  GAAP  and  IFRS?     3. What  is  required  for  the  transition  period?     ©  LeaseAccelerator  Inc.  2015.  All  rights  Reserved.  Not  for  Distribution.
  20. 20. Lease  Accounting  Standard  Changes 1.  Challenges  today if  all  operating  leases  had  to  be   capitalized  under  existing  rules This  is  where  most  of  the  work  is! • Data  and  document  gathering  and  centralization • Track  and  link  asset  and  liability  at  asset  level • Asset  and  liability  accounting  and  reporting • Reconciled  documentation • Drill-­‐Down  Capabilities • Mid-­‐term  and  end-­‐of  term  partial  events   • Deferred  Income  Tax • Assessment  of  Tax  Issues ©  LeaseAccelerator  Inc.  2015.  All  rights  Reserved.  Not  for  Distribution.
  21. 21. Lease  Accounting  Standard  Changes 2.  Additionalrequirements  or  changes  with  future  rules?     For  many,  incremental  changes  not  significant. • Fundamental  Change  or  Increased  Scrutiny?   • “Reasonable  Certainty”  of  Holding  Period • Possible  Need  for  re-­‐assessment  (FAS  /  IAS   Differences) • New  Disclosure  Requirements   • Estimates  Allowed  for  Breaking  Down   Components. ©  LeaseAccelerator  Inc.  2015.  All  rights  Reserved.  Not  for  Distribution.
  22. 22. Lease  Accounting  Standard  Changes 3.  What  is  required  for  the  transition  period? • Multiple  sets  of  books. • Effective  beginning  of  comparative  period   • Lease  Administration  and  Accounting  Software   integrated  to  ERP • Opportunity  for  Organizations  to  gain  better   control  and  avoid  overpaying  on  leases • Evidence  of  compliance  from  portfolio  to   schedule  to  asset  to  executed  documentation. ©  LeaseAccelerator  Inc.  2015.  All  rights  Reserved.  Not  for  Distribution.
  23. 23. Lease  Accounting  Standard  Changes http://www.ifrs.org/Current-­‐Projects/IASB-­‐Projects/Leases/Documents/Practical-­‐implications-­‐Leases-­‐Standard-­‐Project-­‐Update-­‐March-­‐2015.pdf Appendix  A:    Source > IFRS.ORG ©  LeaseAccelerator  Inc.  2015.  All  rights  Reserved.  Not  for  Distribution. Summary  of  similarities  and  differences  for  lessee  accounting 3  Lease  liabilities  are  measured  in  the  same  way  under  the  IASB  model  and  the  FASB  model,  except  that  inflation-­‐linked  payments  are  reassessed  when  those  payments  change  under  the  IASB  model,  but  are   not  under  the  FASB  model. 4  Lease  assets  are  measured  at  an  amount  that  achieves  the  recognition  of  a  single  lease  expense  typically  on  a  straight-­‐line  basis. 5  Under  IFRS,  interest  payments  can  be  presented  within  either  operating  or  financing  activities. New:    FASB  cash  flow  statement  will   not  change  for  operating  leases.
  24. 24. ©  LeaseAccelerator  Inc.  2015.  All  rights  Reserved.  Not  for  Distribution. More  Information Download  our   Lease  Accounting   Changes   Handbook www.leaseaccelerator.com /whitepaper
  25. 25. ©  LeaseAccelerator  Inc.  2015.  All  rights  Reserved.  Not  for  Distribution. Thank  You Web: www.leaseaccelerator.com Email: sales@leaseaccelerator.com Phone:   1-­866-­446-­0980

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