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.

1. ©
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2015.
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FASB & IFRS Lease Accounting
Standard Changes

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.
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2015.
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Distribution.

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
>>>
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LeaseAccelerator
Inc.
2015.
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rights
Reserved.
Not
for
Distribution.
(*)
For
Companies
with
December
31,
year
ends

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
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LeaseAccelerator
Inc.
2015.
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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. 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:
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2015.
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Not
for
Distribution.

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
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LeaseAccelerator
Inc.
2015.
All
rights
Reserved.
Not
for
Distribution.

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
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LeaseAccelerator
Inc.
2015.
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rights
Reserved.
Not
for
Distribution.

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
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2015.
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Not
for
Distribution.

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.
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for
Distribution.

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
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Inc.
2015.
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Not
for
Distribution.
Lease
Accounting
Standard
Changes

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
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Inc.
2015.
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rights
Reserved.
Not
for
Distribution.
Lease
Accounting
Standard
Changes

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
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LeaseAccelerator
Inc.
2015.
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rights
Reserved.
Not
for
Distribution.
Lease
Accounting
Standard
Changes

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.”
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LeaseAccelerator
Inc.
2015.
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rights
Reserved.
Not
for
Distribution.

14. Lease
Accounting
Standard
Changes
©
LeaseAccelerator
Inc.
2015.
All
rights
Reserved.
Not
for
Distribution.
Proposed
Transition
relief:

15. ©
LeaseAccelerator
Inc.
2015.
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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. ©
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. 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.)
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Inc.
2015.
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Not
for
Distribution.

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
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LeaseAccelerator
Inc.
2015.
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rights
Reserved.
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Distribution.

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?
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2015.
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Distribution.

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
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Distribution.

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.
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Inc.
2015.
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rights
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Not
for
Distribution.

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.
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LeaseAccelerator
Inc.
2015.
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rights
Reserved.
Not
for
Distribution.

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
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Not
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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.

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More
Information
Download our
Lease Accounting
Changes
Handbook
www.leaseaccelerator.com
/whitepaper

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You
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