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#JDEINFOCUS
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
#JDEINFOCUS
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
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About Grant Thornton JDEJD Edwards practice
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• Teaming with JDE product development – we work with JD Edwards
on enhancing the code base for customers (e.g. OneView
Reporting, Revenue Recognition, Leasing Standards, Configurator)
Experience and recognition
• More than 250 JD Edwards implementations and upgrades as a
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optimization
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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
#JDEINFOCUS
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
#JDEINFOCUS
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
#JDEINFOCUS
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
#JDEINFOCUS
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
#JDEINFOCUS
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
#JDEINFOCUS
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
#JDEINFOCUS
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
#JDEINFOCUS
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.
#JDEINFOCUS
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 = Schedule Not Created orSchedule Not Required
Status = Lease Terms Complete
Status = Schedule Created
Status = Amortization Review Complete
Status = Commencement Complete
#JDEINFOCUS
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
#JDEINFOCUS
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
#JDEINFOCUS
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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Lease master revisions
The lease classification for each asset defaults from the header of
the lease
#JDEINFOCUS
Lease master revisions
Lease details for each asset on the lease that
indicate how amortization schedules and JEs will be made
#JDEINFOCUS
Lease master revisions
Lease details for each asset on the lease that
indicate how amortization schedules and JEs will be made
#JDEINFOCUS
Lease master revisions
Informational lease details that help justify the lease
classification
#JDEINFOCUS
Lease master
Processing option to offer a separation of
duties: Lease Administrator and
Accounting Manager
#JDEINFOCUS
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
#JDEINFOCUS
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
#JDEINFOCUS
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
#JDEINFOCUS
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
High level business process outlined
37
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 Not Created orSchedule Not Required
#JDEINFOCUS
High level business process outlined
38
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
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
#JDEINFOCUS
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
#JDEINFOCUS
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
#JDEINFOCUS
High level business process outlined
41
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
Once the amortization schedules have been created, they can be
reviewed.
Status = Schedule Not Created orSchedule Not Required
#JDEINFOCUS
High level business process outlined
42
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
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.
Status = Lease Terms Complete
Status = Schedule Created
Status = Amortization Review Complete
Status = Commencement Complete
Status = Schedule Not Created orSchedule Not Required
#JDEINFOCUS
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
#JDEINFOCUS
High level business process outlined
44
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
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
Status = Schedule Created
Status = Amortization Review Complete
Status = Commencement Complete
Status = Schedule Not Created orSchedule Not Required
#JDEINFOCUS
Recurring payment and balance sheet journal entriesExample: prepaid quarterly rent for a finance lease, quarterly rent = 10,000
45
#JDEINFOCUS
Lessee Accounting journal entries
46
Journal entries are traceable back to the amortization schedules
#JDEINFOCUS
P09215 - Lessee accounting – Visibility
47
Trial Balance - Complete visibility into Lease Liability and Right of Use Asset for
each leased asset
#JDEINFOCUS
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
Please complete a session evaluation
Session ID: 101530
Contact Info:
seth.Chaikin@us.gt.com
Tel: 913.522.6828
#JDEINFOCUS
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