The Financial Accounting Standards Board and International Accounting Standards Board will release new lease accounting standards by the end of 2015 that require companies to record all leases over 1 year as assets and liabilities. This will add over $1.35 trillion in assets and liabilities to company balance sheets and profoundly impact capital structure, leasing practices, and processes. Most companies are unprepared for implementation by 2017-2018 and need to begin comprehensive preparation plans now, including assembling lease inventories, assessing financial impacts, enhancing lease management systems, and training personnel. Failure to properly transition could result in non-compliance penalties and excessive costs to catch up.
LIVE EVENT - 3rd Annual Fall Construction Risk Update - September 30Rea & Associates
If the last two years have taught us anything, it’s that you can never be too prepared. Rea & Associates is proud to present the 3rd Annual Fall Construction Risk Update event, jam packed with expert commentary and exclusive content for business owners in the construction industry. This year, we’re here to guide you through the changes 2021 brought to taxes, finances, liability, and more and give you a glimpse into future considerations for construction industry leaders.
Banking Industry Whitepaper: Implications of the Lease Accounting Changesjmeedzan
Banking Industry Whitepaper: This whitepaper presents the most important elements and implications of the Revised FASB and IASB Lease Accounting Change Exposure Draft at a high level to provide the reader with a basic understanding of the proposed lease accounting changes and the potential impact to banks as both a lender and a lessee. In the introductory pages we will review the background and details around the proposed changes to give the reader a historical recap over the past few years. We will then review how we see the proposed lease changes impacting the Banking industry.
SEC Adopts Enhanced Compensation and Corporate Governance Proxy Disclosure Rules for 2010 Proxy Season
A Practical Approach to What Companies, Boards and Compensation Committees Need to Do Now
LIVE EVENT - 3rd Annual Fall Construction Risk Update - September 30Rea & Associates
If the last two years have taught us anything, it’s that you can never be too prepared. Rea & Associates is proud to present the 3rd Annual Fall Construction Risk Update event, jam packed with expert commentary and exclusive content for business owners in the construction industry. This year, we’re here to guide you through the changes 2021 brought to taxes, finances, liability, and more and give you a glimpse into future considerations for construction industry leaders.
Banking Industry Whitepaper: Implications of the Lease Accounting Changesjmeedzan
Banking Industry Whitepaper: This whitepaper presents the most important elements and implications of the Revised FASB and IASB Lease Accounting Change Exposure Draft at a high level to provide the reader with a basic understanding of the proposed lease accounting changes and the potential impact to banks as both a lender and a lessee. In the introductory pages we will review the background and details around the proposed changes to give the reader a historical recap over the past few years. We will then review how we see the proposed lease changes impacting the Banking industry.
SEC Adopts Enhanced Compensation and Corporate Governance Proxy Disclosure Rules for 2010 Proxy Season
A Practical Approach to What Companies, Boards and Compensation Committees Need to Do Now
B2G Seminar Slides for Get in the Game. Sponsored by Whittaker-Cooper Financial Group. Presented by Jack Quinn Solutions, LLC and Space Coast Entrepreneurs
Government Contracting Compliance & Ethics Programs (General Counsel, P.C.); ...govWin
Ethics and compliance has evolved to require actions beyond just doing the right thing. Government contractors must now act in accordance with the highest standards of ethics and compliance as possible. Ethics and compliance is no longer elective, it is now legislated. We will discuss understanding the new age of ethics, how to install an ethics culture, FAR compliance regulations, contracts and finance compliance practices, strategies for maintaining compliance and internal controls.
After 15 years without major changes, the OECD has recently published a revised version of the OECD Guidelines, the document that provides the principles and recommendations used for transfer pricing analysis in many countries of the world.
The revised text includes a complete overhaul of Chapters I to III, the chapters covering the introduction, comparability analysis and use of methods. The new text also includes a completely new Chapter IX related to business restructuring. This new Chapter IX builds on earlier discussion papers from the OECD on the subject of business restructuring.
In this presentation, the transfer pricing specialists of DLA Piper will summarize the changes for you and will discuss the implications that the new OECD guidelines has for companies preparing transfer pricing documentation or planning their transfer pricing policies.
What you'll learn:
Reasoning behind this new guide
Major changes since 2005
Reasonable compensation changes
Expanded audit guidance
Cognizant agency rules
The OMB has put out new direction on how those organizations receiving federal grants handle reporting. Smith & Gesteland presented a seminar explaining the basics of what has been referred to as The Super Circular.
FASB Proposals Affecting Government ContractorsDecosimoCPAs
Robert Belcher and Ken Conner co-presented this PowerPoint at the 2012 RocketCity GovCon Conference hosted by Solvability in Huntsville, Ala. on Sept. 20, 2012.
B2G Seminar Slides for Get in the Game. Sponsored by Whittaker-Cooper Financial Group. Presented by Jack Quinn Solutions, LLC and Space Coast Entrepreneurs
Government Contracting Compliance & Ethics Programs (General Counsel, P.C.); ...govWin
Ethics and compliance has evolved to require actions beyond just doing the right thing. Government contractors must now act in accordance with the highest standards of ethics and compliance as possible. Ethics and compliance is no longer elective, it is now legislated. We will discuss understanding the new age of ethics, how to install an ethics culture, FAR compliance regulations, contracts and finance compliance practices, strategies for maintaining compliance and internal controls.
After 15 years without major changes, the OECD has recently published a revised version of the OECD Guidelines, the document that provides the principles and recommendations used for transfer pricing analysis in many countries of the world.
The revised text includes a complete overhaul of Chapters I to III, the chapters covering the introduction, comparability analysis and use of methods. The new text also includes a completely new Chapter IX related to business restructuring. This new Chapter IX builds on earlier discussion papers from the OECD on the subject of business restructuring.
In this presentation, the transfer pricing specialists of DLA Piper will summarize the changes for you and will discuss the implications that the new OECD guidelines has for companies preparing transfer pricing documentation or planning their transfer pricing policies.
What you'll learn:
Reasoning behind this new guide
Major changes since 2005
Reasonable compensation changes
Expanded audit guidance
Cognizant agency rules
The OMB has put out new direction on how those organizations receiving federal grants handle reporting. Smith & Gesteland presented a seminar explaining the basics of what has been referred to as The Super Circular.
FASB Proposals Affecting Government ContractorsDecosimoCPAs
Robert Belcher and Ken Conner co-presented this PowerPoint at the 2012 RocketCity GovCon Conference hosted by Solvability in Huntsville, Ala. on Sept. 20, 2012.
For years, lease accounting has been criticized as a means of structuring off-balance sheet financing, particularly as it related to the airline industry. In response to this feedback, the Financial Accounting Standards Board (FASB) and International Accounting Standards Board (IASB) initiated a joint project to overhaul accounting for leases in 2008, which was one of the cornerstone projects of a path towards convergence.
The FASB issued an exposure draft in 2010, but it received such heavy criticism from multiple parties that it didn't issue the final standard until early 2016. Accounting Standards Update 2016-02, Leases (ASC Topic 842) may be cumbersome to implement as it affects all leases (i.e. property, equipment, copiers) with only a few, minor scope exceptions. It also removes any differences between leases of equipment and real estate that exist in today's U.S. generally accepted accounting principles (GAAP).
A Call to Action CPAs - Confronting the Lease Accounting Changes - iLease Man...jmeedzan
iLease Management LLC has been providing insightful research and recommended approaches into the proposed lease accounting changes for over two years. This presentation dives into not only how the proposed FASB and IASB lease accounting changes will impact organizations but shows how, at the functional level, what questions need to be considered in order to comply with these upcoming standard changes. We outline the functional areas like Corporate, Finance, Treasury, Human Resource and Technology. And given the resource limitations within most organizations, we show how the lease accounting changes will present “Opportunities for Assistance” for Certified Public Accountants (“CPAs”) that are looking for ways to add value to their client relationships.
This presentation explains how CPAs can position themselves to be proactive and provide technology and services that are of critical importance to their clients.
McKonly & Asbury’s April webinar entitled, “Leasing: A New Standard is Finally Here” is hosted by Dan Sturm, Partner; Brett Bauer, Senior Manager; and Tim Showers, Supervisor. During this webinar, attendees will learn how ASC 842 differs from ASC 840; will see illustrative financial statements which highlight exactly what changes as a result of the new standard; and will gain an understanding of what they should be doing now to prepare.
The New Lease Accounting Standard And You Whitepaperjtagliente
If you are not aware of the impact that the new FASB 13 rules being introduced this year will have on your company then you must read this. It is startling!
Read this SAP Thought Leadership Paper to understand what new changes in regulations mean for your business and how you can become smarter about revenue recognition and lease accounting with SAP Lease Administration by Nakisa, a solution extension from SAP.
Accounting and Financial Reporting – Current Developments .docxnettletondevon
Accounting and Financial Reporting – Current Developments
156
I. Changes Coming To Lease Accounting
The FASB's lease accounting project has nine lives and has survived two exposure drafts while
headed toward final passage. As of early 2015, the FASB is putting the finishing touches on a
new lease standard that, when passed, will make dramatic changes to the way companies
account for lease transactions. In particular, most leases will be capitalized, resulting in billions
of dollars of assets and liabilities being recorded on company balance sheets.
Although the lease accounting project has gone through numerous changes, the fundamental
concept that leases be capitalized is not going to change in the final document.
In this section, the author discusses the general concepts that are included in the most recent
lease exposure draft, with modifications that have been proposed by the FASB through their
ongoing deliberations.
Background
Under current GAAP, ASC 840, Leases (formerly FASB No. 13), divides leases into two
categories: operating and capital leases. Capital leases are capitalized while operating leases
are not. In order for a lease to qualify as a capital lease, one of four criteria must be met:
1. The present value of the minimum lease payments must equal or exceed 90% or more of
the fair value of the asset.
2. The lease term must be at least 75% of the remaining useful life of the leased asset.
3. There is a bargain purchase at the end of the lease.
4. There is a transfer of ownership.
In practice, it is common for lessees to structure leases to ensure they do not qualify as capital
leases, thereby removing both the leased asset and obligation from the lessee’s balance sheet.
This approach is typically used by restaurants, retailers, and other multiple-store facilities.
Consider the following example:
Facts:
Lease 1: The present value of minimum lease payments is 89% and the lease term is 74% of
the remaining useful life of the asset.
Lease 2: The present value of minimum lease payments is 90% or the lease term is 75% of the
remaining useful life of the asset.
Accounting and Financial Reporting – Current Developments
157
Conclusion: There is a one percent difference between Lease 1 and Lease 2. Lease 1 is an
operating lease not capitalized, while Lease 2 is a capital lease under which both the asset and
lease obligation are capitalized.
SEC pushes toward changes in lease accounting
In its report entitled Report and Recommendations Pursuant to Section 401(c.) of the
Sarbanes-Oxley Act of 2002 On Arrangements with Off-Balance Sheet Implications, Special
Purpose Entities, and Transparency of Filings by Issuer, the SEC targeted lease accounting as
one of the areas that results in significant liabilities being off-balance sheet.
According to the SEC Report that focused on U.S. public companies and a U.S. Chamber of
Commerce report:
a. 63 .
The past year has been an active one for accounting standards updates (ASUs). Fortunately for those preparing for year end, the fourth quarter only had one ASU issued and the majority of the 17 updates issued by the Financial Accounting Standards Board (FASB) during 2015 are narrow in scope or simplifications of existing standards.
The New Year promises broader changes from the FASB, however. Major projects, including the Leasing Standard have been approved and are pending publication in early 2016.
The Financial Accounting Standards Board has issued Accounting Standards Update No. 2016-
02, Leases (Topic 842), an Amendment of the FASB Accounting Standards Codification, which outlines changes in the way that lessors are required to report certain monies collected for leased assets. These new lease accounting standards – known as ASC 842 – will go into effect for public companies January 2019 and for private companies and not-for-profits January 2020.
These changes affect the several aspects of lease accounting documentation,Learn What This Means for Your Business
IFRS 15 - the new revenue recognition standard EY Belgium
The IASB and the FASB have jointly issued a new revenue standard, IFRS 15 Revenue from Contracts with Customers, which will replace the existing IFRS and US GAAP revenue guidance.Find out more in our comprhensive brochure.
Lease Accounting: Preparing Your Business for 2022Citrin Cooperman
Making a smooth transition to the new lease accounting standards and putting new practices in place for the future is a top priority for any business as they plan for 2022. During this webinar session, we reviewed how you can handle and prepare to navigate your business through the new lease accounting standards.
Topics included:
- What private companies should think about for 2022
- How the lease accounting standards can impact your financial
statements, financial covenants, and taxes
- Identifying opportunities for your business due to the new lease
accounting standards
Preparing for the new lease accounting standard can seem like a daunting task. In this webinar, we reviewed how you can handle and prepare to navigate your business through the new lease accounting standard in 2022.
Lease accounting received an accounting overhaul with the recent release of the Financial Accounting Standards Board (FASB)'s Accounting Standards Update 2016-02 Leases (Topic 842). The new standard most significantly changes lessee accounting compared to existing US GAAP, but also has some targeted changes for lessor accounting. Overall, ASU 2016-02 seeks to improve transparency to the economics of lease transactions and bring lease accounting into line with other recently released accounting standards updates, such as the changes to Revenue from Contracts with Customers (Topic 606).
Milestone Two
Geoff Brown
Professor Duhn
ACC 680
February 16, 2017
Introduction
I have worked as an accountant specialist for Whitlock Company for the past three years. I have gained a lot of experience that has shaped my accounting skills and knowledge. I have received promotions based on my good work to the position of heading accounting department. The company offers accounting services such as public accounting, bookkeeping and auditing. The company has developed a work plan. The work plan purpose is to consider particular factors and areas important to a commission determination as to how, when and whether the current financial reporting system in the company should be changed to a system integrating International Financial Reporting Standards (IFRS). The work plan showed that application of IFRS and sufficient development evaluation involve inventorying fields in which IFRS does not provide guidance than the GAAP.
Different reporting requirements for IFRS and GAAP
In GAAP, it presents a comparative financial statement and requires public organizations to follow SEC rules that need two-recent year’s balance sheets and the other statements should cover a three-year period ended on the balance sheet date. Nevertheless, one year can be presented in a specific condition. For IFRS, there must be disclosure of comparative information with respect to past period for all amounts reported in the present time financial statement.
Cont.
There is no general requirement to prepare income statements and balance sheets in accordance with particular layout in GAAP. But, public organizations are required to follow the detailed Regulation S-X requirements. However, IFRS does not recommend a customary layout. It involves a list minimum line items which are less prescriptive when compared to the Regulation S-X requirements.
There are no general requirements that solve the disclosure of performance measures for GAAP. Certain major measures are defined in SEC regulations and require the provision of certain subtotals and headings. For IFRS, there is presentation of certain traditional concepts such as subtotals and headings, and line items diversity in the income statements. It allows the presentation of additional headings and subtotals and line items in the comprehensive income statement.
Cont.
GAAP requires presentation of Debt which has covenant violation as a non-present if the creditor contract to waive the right to demand repayment for more than a year exists before the financial statement issuance. IFRS requires presentation of Debt associated with covenant violation as present unless the creditor contract was reached prior to the balance sheet date.
In GAAP, third balance sheet is not required. In IFRS, a third balance sheet should be presented at the beginning of comparative period when there is reclassifications that have a material effect, a retrospective restatement or a retrospective application of new accounting policies that hav ...
Your Leasing Questions Answered - May 2018CBIZ, Inc.
Accounting for leases is changing. Beginning in 2019 for public business entities and 2020 for private companies, the new leasing standard will require most operating and finance leases to be recorded on the balance sheet. It also expands the definition of a lease and adds disclosure and presentation requirements. This Q&A article may help simplify the implementation process.
1. The Lease Accounting Tsunami
Are You Prepared to Weather the Storm?
The Financial Accounting Standards Board (FASB) and its international counterpart
(IASB) are expected to release the final version of their Lease Accounting Standards by
the end of 2015, with implementation required by 2017-2018. The IASB is expected to
release soon, and the US Board is expected to follow suit by the end of this year.
Essentially the standard requires lessees to record all leases (of more than 1 year) as
both assets (Right of Use-ROU ) and liabilities on the balance sheet. These include both
real estate as well as equipment leases. Furthermore the standards will require a
restatement of all leases retrospectively going back three years.
The impact of this accounting standard change will have a profound impact on a
company’s capital structure, leasing practices, and operational processes. It has been
estimated that the accounting change will add no less than 1.35 trillion dollars of assets
and liabilities to company balance sheets. In a recently published survey by IBM, 92%
of companies surveyed indicated that they were not prepared to implement the
standard, either in terms of lease information systems, employee training, or leasing
practices and policies.
2. The US and International standard differs in one respect and that is the International
standard accounts for all leases as capital leases, classified as Type A leases; whereas
the US standard will differentiate between Type A leases (capital leases) and Type B
leases (operating leases) In the case of Type A leases, depreciation and interest
expense will be recorded on the P&L statement, while Type B leases will only include
straight line depreciation. Like mortgage interest expense, Type A lease expenses will
be disproportionately front loaded (see footnotes for the four criteria used to define a
capital lease)*
These changes in lease accounting will dramatically affect the relationships between the
corporate treasury function, accounting, and corporate real estate. In the past the
financial impact of real estate transactions, was relatively invisible to senior
management and more importantly to the investor community. Financial analysts would
have to sort through 10-K and other disclosure documents to gain insights to the impact
of leasing on the company’s capital structure and debt capacity. The new standard will
shed a harsh light on the aggregate impact of lease liabilities, and force a more
disciplined approach to leasing practices, information management systems, and
accounting methodologies.
Since the standards will most likely go into effect by 2017-2018, it is imperative that
companies begin now to execute a comprehensive plan to prepare for the standards
change. As a first step, a project team needs to be assembled with representatives from
corporate accounting, finance, real estate, and equipment leasing. The first order of
business for the team is to assemble a complete inventory of all real estate and
3. equipment leases. If the company does not have an automated system to track and
account for leases, it is imperative that a robust system be acquired.
Once a complete inventory is assembled, a detailed analysis should be completed to
assess the total net present value of lease payments, by year over ten years, as well as
calculating these values retrospectively for three years. Specific questions should
include the following:
1. How does the new standard affect the current lease portfolio? Specifically, what
is the total asset value (ROU) and liability value after recalculating the company’s
lease portfolio?
• Rank each lease from the highest total net value to the lowest relative to
lease term and annual cost
• Rank leases from lease term remaining, as well as renewal options
• Create a variance analysis between old asset and liability values and new
values. Calculate how these values change over time (at least ten years)
2. How will these new values affect the company’s key financial indicators such as
ROA (return on assets), Debt to Equity Ratio, and related tax effects? (NOTE:
FASB has decided that Type B leases will have liabilities but these will not
be considered as debt. The IASB will classify all leases as Type A, and will
consider these liabilities as “debt like.”
• Calculate ROA, Debt to Equity (for Type A only), and net tax effects over
time, with changes in lease values
4. • Research how these changes would affect debt covenants and potential
impacts on stock and bond values (for Type A only)
• Seek input from key lenders on their assessment of accounting changes
on company debt capacity and changes in cost of debt. (As they relate to
Type A lease liabilities)
3. What enhancements are needed to the lease management system to comply
with the new standard?
• Identify specific functionality needed, size the magnitude of the
enhancements and range of cost and schedule to implement
• Determine if the lease accounting system for the new standard can be
maintained separately, and integrated as necessary with current system if
and when needed for annual or quarterly reporting.
• Review system enhancements with company auditors to ensure
compliance with the new FASB/ IASB standard.
4. How will the lease management system integrate with the company’s financial
and accounting systems and to satisfy the audit requirements of the Sarbanes
Oxley Act?
• Identify the software functionality to achieve integration (determine if
existing systems are adequate or whether a wholesale upgrade is more
cost effective)
• Establish system costs and schedule to implement
5. • Review system upgrades with company finance and audit staff for
adequacy
5. What methodologies should be employed to evaluate future lease/buy decisions
in light of the new standard?
• Segregate major leasing actions anticipated over the next five years,
including both new leases, and lease renewals
• Establish ROI (return on investment) and payback thresholds for
purchase scenarios in light of the new accounting standard
• Determine effects of the new accounting standards on purchase
scenarios relative to changes in cash balances, debt and equity values.
6. How will financial and lease management personnel be trained to adapt to the
intricacies of the new lease standards?
• Identify training resources, costs and schedule
• Identify staff to be trained
• Determine scope of training
7. What portion of the lease portfolio will be impacted by the international standards
which differ slightly from the US FASB standard as it relates to Type A (capital
leases) and Type B (operating leases)? The international standard does not
differentiate lease types and requires all leases to be treated as Type A (capital)
leases.
6. • Isolate international leases and rank by length of lease and value
• Differentiate accounting impacts between US and international leases,
and analyze differences primarily in debt to equity levels.
• Confirm that US capital leases (Type A) meet the four FASB criteria for
capital leases.*
• Review values with both internal and external auditors, as well as investor
relations (if a public company)
8. How leasing strategies should be reconsidered relative to lease term, renewal
options, and other variables which will now impact the balance sheet?
• Isolate high impact leases (i.e. leases with multiple years remaining on
lease) Consider negotiating shorter lease terms to mitigate balance sheet
impact.
• Establish company guidelines on new lease parameters, i.e. lease term,
renewal options, and use of company capital for tenant improvements,
versus incorporating in the rent.
9. What is the schedule and budget for implementing the necessary changes to
lease management systems, lease accounting, and training of personnel?
• Create a budget and schedule for implementation
• Consider the lead time necessary to implement the required changes.
Expect at least two years to complete all the necessary changes for
system updates, training, and process changes.
7. • Review the project plan with management to insure buy-in and support as
well as insuring adequate resources are provided.
• Insure sign-off by outside auditors
10.What consulting resources are needed to accomplish the transition to the new
lease standards and how can these services be single sourced for both process
and system upgrades
• Develop an RFP to be used in the selection of consulting/ system
resources
• Evaluate the use of separate versus single source consultants and system
providers
• Develop selection criteria in terms of competencies, references, fees, and
efficiencies
The advent of new leasing standards will have a profound impact on a company’s
leasing practices, processes, and leasing systems applications and infrastructure. It is
clear that most companies are still inadequately prepared to comply with the new
standard in a timely fashion. It is unknown how this change will affect commercial
markets and landlord practices. It is possible that because of the balance sheet impact
of commercial leases, that over-all demand for leased space will recede, particularly for
high cost urban office space. It’s also possible that equipment leasing will impact
equipment pricing and financing. Despite these uncertainties it is clear that companies
need to implement the necessary changes as outlined above to be ready for the
changes that will most certainly come into being over the next two years. Those
8. companies that fail to execute a comprehensive transition to the new standard may face
severe penalties for non-compliance and excessive costs in attempting to catch up in a
reactive and haphazard manner. Those companies who implement in a timely fashion
could achieve the added benefit of gaining insight to the company’s leasing profile, cost,
and processes.
Criteria for determining a capital lease: (Per FASB 13)
§ The lease automatically transfers ownership of the property to the lessee by the end
of the lease.
§ The lease contains a bargain purchase option.
§ The lease term equals 75% or more of the estimated economic life of the property.
§ The present value of the minimum lease payments at the beginning of the lease
term equals or exceeds 90% of the fair market value of the property.
