Implementing the New Lease Accounting Standard

Prepared by:

Chris Schmidt, Deloitte Consulting

Stephen Shim, Deloitte Consulting

Your JDE Solution Roadmap

Session ID#: 2017JDE-100460

@ DeloitteOracle

#DeloitteOracle #JDEINFOCUS

Introductions

PrincipalDeloitte Consulting LLP

TechnologyOracle | JDEdwards

+1.305.372.3105 (office)+1.303.809.9952 (mobile)chschmidt@deloitte.com

Chris Schmidt

Senior ManagerDeloitte Consulting LLP

TechnologyOracle | JDEdwards

+1.303.312.4058 (office)+1.303.204.3374 (mobile)kshim@deloitte.com

Stephen Shim

Discussion Topics

■ Lease Accounting Standard Background■ JDE Lease Module■ Demo■ Q&A

Lease Accounting Standard

Background

ASC 842: Timeline and TransitionNew lease standard issued on February 25 2016; first reporting FY2019*

FASB releases new standard for lease

accounting that impacted all public companies

Beginning of earliest comparative period

presentedASC 842

Effective Date

First annual reporting date

ASC 842 issued Feb 25, 2016

Comparative periods to be restated under ASC 842

First quarterly reporting date

ASC 842 transition considerations:• ASC 842 transition provisions differ from IFRS 16• Lessees and lessors are required to use a modified retrospective transition method for

existing leases• Apply requirements to leases in effect at or after the start of the earliest comparative period• Practical expedients available to alleviate certain reassessments for leases entered into prior

to the effective date• Other ASC 842 provisions (e.g., relating to non-lease components and to modifications) need

to be applied during comparative periods*Assuming early adoption is not elected

IFRS 16: Timeline and TransitionNew lease standard issued on January 13 2016; first reporting FY2019*

IFRS 16 issues Jan 13, 2016

Beginning of earliest comparative period

presentedASC 842 effective

date

First annual reporting date

Comparative period presented under full retrospective approach

First quarterly reporting date

*IFRS 16 permits early application only after adoption of IFRS 15 Revenue from Contracts with Customers

Under IFRS Lessee has two options for adoption:1. Full retrospective approach (IAS 8) or2. Modified retrospective approach: do not restate comparative information, but rather book the cumulative effect of

applying IFRS 16 as an adjustment to opening equity.

Full

retro

spec

tive

Mod

ified

retro

spec

tive

appr

oach

The opening cumulative effects of applying IFRS 16 should be adjusted in opening equity

without restatement

The Big PictureMost leases on balance sheet for lessees

Classification will likely drive expense profile

Lessor model largely unchanged

Most changes result from alignment with ASC 606

FASB tried to make things easy

Classification, reassessment, transition

Effective 2019, but don’t wait to assess impact

Process and systems changes will be requiredPotential impact on debt covenants

Key takeaways – Refer to Deloitte Heads Up for details

Operational ChallengesKey challenges associated with the proposed lease standard

The data being collected may be in a variety of formats, thus increasing the complexity and cost of organizing the data.

3 Timeline for adoption: It can be a challenge to anticipate the data gaps and overcome the data abstraction hurdle. A typical timeline from planning to implementation is 12-18 months.

2 IT systems: Need to store lease data and perform calculations. Consider modifying existing system or moving to new system. Given the long lead times of system initiatives, may need bridge system.

1 Data Challenges: High volume of lease agreements across multiple decentralized locations, in different business and operating units.

High volume of data fields

Multiple languages / contracting practices

Data housed in

various systems

Agreements aren’t

electronic

Multiple currencies

Number of new data elements

Lack of resources

New analytics or

metrics needs

Information isn’t all in

one agreement

SOX regulations

Implications and Path Forward…

■ Data is king■ Impact on stakeholders significant■ Basic requirement:

▪ Journal Entries▪ Disclosure Reporting

■ JDE SOLUTION DESIGN PRINCIPLES

JDE Lease Module

New Lease Standard Module

2 Integrated Solution: Integrated solution developed as a new module within JDEdwards EnterpriseOne with integration to other relevant modules (general ledger, accounts payable, and fixed assets).

1 Lease Solution: Solution to handle the new lessee accounting requirements under ASC 842 and IFRS 16.

Monthly Accounting

Entries

Remeasure-mentNPV

Schedule

Payment Processing

Minimum Payment schedule

Lease master

Lease Options

Lease Liability

ROU Asset

Reporting

Guiding Design Principles

Develop solution to meet the core accounting requirements (accounting entries, payments, and reporting)

Limit base code modifications to absolute minimum (Accounts Payable row exit)

Leverage standard functionality to handle requirements which meet the intent of the existing functionality (e.g. Fixed Assets, AAIs)

Develop within the Deloitte designated system code (Q59)

Avoid automation of processes requiring high degree of judgement (e.g. lease classification, remeasurement)

Leverage existing system and data integrity approaches (e.g. FA Ledger to GL, GL Detail to GL Balances)

Build incremental system and data integrity routines (e.g. Lease Ledger to Lease Balance, Lease Ledger to GL Balance, Lease Voucher Tag to Payment Detail)

Provide mechanisms to ease initial catch-up / transition to new standards (e.g. import/export, lease copy)

High degree of auditability and traceability of historical transactions (e.g. Lease Status, Lease Ledger, Lease Versions)

Build with intent to add incremental future enhancements (e.g. automate minimum payments entry, additional forms edits/rules)

Lease Business Activity Flow

Guaranteed Min. Payment

Schedule(FQ5913)

Fixed Assets

Review & Approve Lease Agreement –

Status 30

General Ledger(F0911)

FA Balance(F1202)General Ledger

(F0911)

A/P Matching Doc

Detail(F0414)

A/P Matching Doc

(F0413)

End of Lease?

Close LeaseStatus 99

Yes

Approved Lease Agreement –

Status 40

Interactive Accounting Entry

Creation (auto update status to 50)

Batch Accounting Entry Creation (auto update status to 50)

Or

Lease Active – Status 50

Accounting Entry Creation

1. Create JE2. Lease Ledger

Update

Enter/Match Vouchers & Lease

Row Exit

Process Manual/Automatic Payment

Enter Lease Information –

Status 10

Batch Payment Update (RQ590411)

AP Voucher (F0411)

Lease Voucher Tag (FQ590411)

Lease Ledger(FQ5911)

Lease Voucher Tag (FQ590411)

Lease Interest Accrual & Monthly

Lease Expense (RQ59XX)

No

Mo. LeaseAccgt.

Create NPV & Amort. Schedule –

Status 20

Lease Master Status History

(FQ5995)

Lease Worksheet(FQ5912)

Lease Master(FQ5901)

Lease Option(FQ5904)

Present Value(FQ5914)

Fixed Asset Master(F1201)

Lease Balance(FQ5902)

Post Lease Ledger to Lease Balance

(RQ59801)Remeasurement?

Yes

No

Remeasurement

Direct Cost(FQ5905)

Create ROU Acct.

JDE Lease Module

Demo

Deloitte JDE Lease Solution

Deloitte designated system code Q59

Deloitte Lease Solution

Batch Processors and End-User Reports

Transactional Financial

• Lease Financial Position• Lease Expense Summary• Lease Payments• Lease Master Detail• Five Year Lease

Disclosure• Lease Cost Detail

• Amortization and Lease Worksheet Batch Report

• ROU Asset Accounting Generation

• Monthly Lease Accounting Interest Accrual

• Batch Payment Update

Integrity

• Lease Liability to GL• ROU Asset to GL• Lease Balance Integrity• Rebuild Lease Balances

The following is a list of reports built as part of JDE Lease Solution:

Q&A

Chris SchmidtPrincipalDeloitte Consulting LLP

chschmidt@deloitte.com

Stephen ShimSenior ManagerDeloitte Consulting LLP

kshim@deloitte.com

Please complete the session evaluationWe appreciate your feedback and insightSession ID# 2017JDE-100460

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