JD Edwards EnterpriseOne- new Lease Accounting standard ...

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Seth Chaikin

August 22nd, 2019

JD Edwards EnterpriseOne-new Lease Accounting standard

enhancements

© 2017 Grant Thornton LLP | All rights reserved | U.S. member firm of Grant Thornton International Ltd2

Seth Chaikin

Grant Thornton

Business Applications – Managing Director

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Agenda

• About Grant Thornton

• Overview of new lease standards

• Who is impacted and transition

• Enhancements overview

• High level business process for lessee accounting

• Highlights of enhancements for lessee accounting

• Summary

About Grant Thornton

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Grant Thornton

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About Grant Thornton JDEJD Edwards practice

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on enhancing the code base for customers (e.g. OneView

Reporting, Revenue Recognition, Leasing Standards, Configurator)

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• More than 250 JD Edwards implementations and upgrades as a

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optimization

Overview of new lease standards

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Lease accounting standardFASB ASC 842 and IFRS 16 Leases

What

• Revenue Recognition for lease management companies

• Straight-line rent accounting for lessors

• Lessee Accounting for property and non-property leases –on the balance sheet

Why

• Regulatory accounting requirement - provide investors and creditors more transparency into long-term leases

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Lease accounting enhancements for lessees• Available for customers with a license of Financials

• Comes with a restricted use license of Real Estate

Management to manage all your leases

• For EnterpriseOne releases 9.1 and 9.2

Lease Accounting enhancements at no additional cost!

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Timetable for complianceFASB ASC 842 and IFRS 16 Leases

• The new standard became effective for fiscal years beginning after Dec. 15, 2018, including interim periods within those fiscal years for:

• Public business entities

• Not-for-profit entities that have issued securities that are traded, listed, or quoted on an exchange or an over-the-counter market

• Employee benefit plans that file financial statements with the SEC

• For all other entities, it becomes effective for fiscal years beginning after Dec. 15, 2019, and interim periods for fiscal years beginning after Dec. 15, 2020

• January, 1 2019 is the effective date for calendar-year public companies, and January 1, 2020 for nonpublic entities

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Lease classifications

• Finance lease – reported on the balance sheet

• Substantially all of the risks and rewards of ownership of the asset are to the lessee• Sales-type lease for a lessor, if the lessee effectively obtains control of the underlying asset, meeting

any of the following criteria: • The lease transfers ownership of the asset to the lessee by the end of the lease term

• The lessee has a bargain purchase option

• The lease term is for the major part of the remaining economic life of the asset - can be disregarded if the lease commences at or near the end of the asset’s useful life (less than 25% of economic life remains)

• The present value of the lease payments, plus the residual value guaranteed by the lessee that is not already included in thelease payments, amounts to at least substantially all of the fair value of the leased asset

• The underlying asset is specialized such that it is expected to have no alternative use to the lessor at the end of the lease term

• Most leases under IFRS are classified as a Finance lease

• Operating lease – reported on the balance sheet

• If a lease does not meet the criteria for a Finance lease, it is an operating lease

• Not on the balance sheet – short-term, small-valued leased assets are expensed

FASB ASC 842 and IFRS 16 Leases

Who is impacted and transition

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Impact to the businessFASB ASC 842 and IFRS 16 Leases

The new standards will drive changes to the business in the following areas –

• Accounting policies and disclosures

• Application of judgment and estimation

• Related internal controls that will require updating, if not overhauling, to reflect changes in accounting policies and processes

• JD Edwards configuration to capture, process and maintain new lease data and for ongoing maintenance

• Income and other taxes

• Debt covenant compliance

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Impact to the usersDepartments impacted

Accounts Payable

• Manage lease payments and schedules

– Validate amortization schedules

– Setup and maintain recurring payables process

– Manage AP voucher creation and payment process

– Coordinate with Treasury on changes to payment processes

Property Accounting / Fixed Assets

• Identify, classify and maintain leases

– Collect data on existing leases

– Review and validate data

– Define / refine processes for future lease identification

– Enter and maintain lease information in JD Edwards going forward

Finance

• Manage financial impact

– Gather and document assumptions required for calculations

– Project impact on Balance Sheet, ratios, debt covenants

– Provide assurance on proper software calculations during shift to new

standards

– Advise on appropriateness of financial statement treatment and JEs

Tax

• Manage tax impact

– Analyze tax classification of leases and potential book-tax

differences

– Flag leases that need to be addressed for tax classification

purposes

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Implementation process and timeline

• Collect data for identified and

unidentified leases

• Validate data collection

• Review existing contracts for

embedded leases

• Design, define, and update policies

• Determine categories of in scope

leases

• Criteria for leases vs services

evaluation

• Document current Fixed Asset,

Accounts Payable and Treasury

processes

• Identify any customizations to

standard objects used in process

• Determine impact to financial

statements

Plan and Assess Design Build and Test

• Design workshops to review

functional areas impacted by the

rollout of the new functionality

• Identify process changes required

• Document configuration changes and

new setup required in Real Estate,

FA and AP modules

• Identify potential barriers and critical

success factors

• Complete design documentation of

all end to end processes

• Identify operational and financial

reporting requirements

• Determine retrofit needs for

customized objects

• Identify and document data

conversion process

• Update system configuration for new

modules and/or changes to current

configuration

• Retrofit custom objects as needed

• Update and implement the security

matrix for any security changes

• Develop custom reports

• Unit test conversion processes

• Create test scripts

• Complete test cycles – unit, CRP,

integrated, user acceptance

• Resolve all testing issues

• Develop draft cutover plan

Train and Deploy

• Prepare training environment,

materials, and schedule

• Conduct training and transfer

knowledge to users

• Finalize go-live cutover plan

• Validate configuration, menus, tasks,

versions, objects have been

promoted into JDE production (PD)

• Go / No Go decision

• Convert all lease data into the system

• Go live!!

• Resolve any post go live issues

• Maintain lease information

1-2 Weeks 2-3 Weeks 4-5 Weeks 2-3 Weeks

Enhancements overview

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Lessee Accounting processLease creation and management

=Automated step

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High level business process outlined

Setup

Create units and asset

associated with each unit

Create lease and associated units/assets

Setup recurring

and manual billing for

each asset

Create / review amortization schedules

Create initial lease liability and ROU

Asset journal entries

As lease payments are made, create journal entries to

adjust lease liability, ROU Asset and other

accounts

Status = Lease Terms Complete

Status = Schedule Created

Status = Amortization Review Complete

Status = Commencement Complete

Status = Schedule Not Created orSchedule Not Required

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P1510 – Real estate constants

Default values used when creating a new

lease

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P1512 - Work with bill codes/adj reasons

• Bill codes used to identify and account for different types of payments

• Specify how bill codes affect balance sheet calculations

• Effect on lease liability

• Yes

• No

• Effect on Right of use asset

• Lease incentive

• Lease payment

• Initial direct cost

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Minimum setup in fixed assets

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Setup




Setup recurring


each asset






accounts






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P12LA - Asset search for Lessee Accounting

Finance Method in the Asset Master will be the indicator that the asset is a leased asset and not company-owned asset and so is available

when searching for assets.

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Setup




Setup recurring


each asset






accounts






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Lease liability status

UDC Values

Blank Schedule Not Created

10 Lease Terms Complete

20 Schedule Created

30 Amortization Review Complete

40 Commencement Complete

50 Schedule Complete

99 Schedule Not Required

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P1501 - Lease master• Multiple assets per lease

– Lease classification

– Lease commencement date

– Amortization schedule

– Designate Property or Non-Property

• Lease classification for each asset defaults from the header of the lease

• Include informational lease details that help justify the lease classification

• Processing option to offer a separation of duties: Lease Administrator and Accounting Manager

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Lease master revisions

When new lease is created, the lease classification and exercise option default from constants. These are at the lease

level

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The lease classification for each asset defaults from the header of

the lease

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Lease details for each asset on the lease that

indicate how amortization schedules and JEs will be made

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Informational lease details that help justify the lease

classification

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Lease master

Processing option to offer a separation of

duties: Lease Administrator and

Accounting Manager

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Setup




Setup recurring


each asset






accounts






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P1502 - Recurring payables

35

• Indicate which payments have an effect on lease liability

• Indicate if payments are in advance or arrears

• Used to calculate:

– Present Value of Lease Payments (PVLP)

– Lease Liability amortization schedule

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P1511 - Manual payables

36

• Indicate which payments have an effect on Right of Use Asset (ROU Asset)

– Initial Direct Cost

– Lease Incentive

– Lease Payment

– No effect on right of use asset

• Used to calculate:

– Initial Right of Use Asset (ROU Asset) amount

– ROU Asset amortization schedule

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Lease administrator sets the lease status to “lease terms completed”. This will be the status to

indicate that the amortization schedules can now be created


37

Setup




Setup recurring


each asset






accounts



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Setup




Setup recurring


each asset






accounts

Once the lease status is set to “lease terms completed”, the

accounting manager can create the

amortization schedules. Or the UBE can run and select leases based on

this statusStatus = Lease Terms Complete

Status = Schedule CreatedStatus = Schedule Not Created or

Schedule Not Required

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P15171 - Amortization schedule review

39

• Manually create schedules in multiple applications or through a batch program

• Schedules will be used as the basis for initial and ongoing balance sheet journal entries

• Schedules are by month no matter what the payment frequency is

• Monthly borrowing rate = annual borrowing rate / 12

• Audit trail (doc number & GL Date) of periodic balance sheet journal entries

• Help you transition current leases to the new standard

Application to review and edit amortization schedules

across leases

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Amortization schedules

40

The amortization schedules will be

used as the basis for the required JEs (such as interest

expense) over the life of the lease

auditable and quick to run

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41

Setup




Setup recurring


each asset






accounts




Once the amortization schedules have been created, they can be

reviewed.


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42

Setup




Setup recurring


each asset






accounts

Once the amortization schedules have been

reviewed, the accounting manager sets the lease status to “amortization review complete”, the UBE can run and select leases based on this

status and create the initial journal entries.






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Lease commencementCreate initial lease liability and ROU Asset journal entries

43

Example: PVLP (Present Value of Lease Payments) = $100,000

Initial Payment $1,500

Initial Direct Cost 440

Lease Incentive 100

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44

Setup




Setup recurring


each asset






accounts

Each month, journal entries will be made for lease

payments and to write down the Lease Liability and Right

of Use Asset balancesStatus = Lease Terms Complete





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Recurring payment and balance sheet journal entriesExample: prepaid quarterly rent for a finance lease, quarterly rent = 10,000

45

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Lessee Accounting journal entries

46

Journal entries are traceable back to the amortization schedules

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P09215 - Lessee accounting – Visibility

47

Trial Balance - Complete visibility into Lease Liability and Right of Use Asset for

each leased asset

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Lease visibility through UX One pages

48

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Z table import/export of lease info

• Data import/export includes:

• Bill Codes

• Unit Master

• Area Master

• Lease Header

• Lease Detail

• Recurring Billing

• Manual Billing

• For new data in EnterpriseOne

• Ability to update existing information with new lease accounting attributes

49

Summary

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Questions

51

Please complete a session evaluation

Session ID: 101530

Contact Info:

[email protected]

Tel: 913.522.6828

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JD Edwards EnterpriseOne- new Lease Accounting standard ...

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