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Kent Bettisworth
BETTISWORTH & ASSOCIATES © 2016 ERP Corp. All rights reserved.
Controlling 2016 Conference
3
Topics
• Overview
• ASC842 Leases (United States)
• IFRS16 Leases (International)
• US vs International differences
• Impact
• Next Steps
• Summary
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4
Introduction
5
Poll
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Overview of Terms
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Leases – New Standards Approved
Hans Hoogervorst, IASB Chairman, Shining the Light on Leases, March 26, 2016
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Topics
• Overview
• ASC842 Leases (United States)
• IFRS16 Leases (International)
• US vs International differences
• Impact
• Next Steps
• Summary
Start of first section:
List the main points in your presentation and insert this slide at
the start of each new topic. Move the highlighted box down for
each new section. This divides your presentation into easy to
follow sections.
9
Topics
• Key differences
• Example
• Transition
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ASC842 Model
• Who is affected?
• Any entity that enters into lease contracts except:
• Intangibles, oil & gas leases, biologic, inventory, nor under
construction assets or,
• Less than 12 months term or apply capitalization threshold
• How do I apply the principle?
• Identify a lease at inception as operating or finance
• Identify a physical asset (can be implied)
• Right to control and direct the use
• Evaluate for embedded leases in service contracts
• Separate lease and non-lease components
• Record a right-of-use asset in PP&E at present value, plus
amortization over the lease life, and a lease liability
• Identify the lease payments, term and interest rate
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ASC842 Model specifics
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ASC842 Example – Operating Lease
14 http://www.ey.com/UL/en/AccountingLink/Publications-library-Technical-Line
ASC842 Example – Finance Lease
15 http://www.ey.com/UL/en/AccountingLink/Publications-library-Technical-Line
ASC842 Example – Operating vs Finance Lease
16 http://www.ey.com/UL/en/AccountingLink/Publications-library-Technical-Line
ASC842 Transition
17
Topics
• Overview
• ASC842 Leases (United States)
• IFRS16 Leases (International)
• US vs International differences
• Impact
• Next Steps
• Summary
Start of first section:
List the main points in your presentation and insert this slide at
the start of each new topic. Move the highlighted box down for
each new section. This divides your presentation into easy to
follow sections.
18
Topics
• International IFRS16
• Model
• Key differences
• Example
• Transition
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IFRS16 Model
• Who is affected?
• Any entity that enters into lease contracts except:
• Intangibles, oil & gas leases, biologic, inventory, nor under
construction assets or,
• Less than 12 months term or,
• Low value ($5000 suggested)
• How do I apply the principle?
• Identify a lease at inception
• Identify a asset (can be implied)
• Right to control and direct the use
• Evaluate for embedded leases in service contracts
• Record a right-of-use asset in PP&E at present value, plus
amortization over the lease life, and a lease liability
• Identify the lease payments, term and interest rate
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IFRS16 Key differences
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IFRS16 Example
http://www.ey.com/Publication/vwLUAssets/Applying_IFRS_in_telecommunications_-
22 _IASB_issues_new_leases_standard/$FILE/Applying-Leases-Telcos-June2016.pdf
IFRS16 Transition
23
Topics
• Overview
• ASC842 Leases (United States)
• IFRS16 Leases (International)
• US vs International differences
• Financial Impact
• Next Steps
• Summary
Start of first section:
List the main points in your presentation and insert this slide at
the start of each new topic. Move the highlighted box down for
each new section. This divides your presentation into easy to
follow sections.
24
US vs International Differences
ASC842 IFRS16
• Definition • Definition
• Separate guidance for finance and operating • Does not separate finance and operating leases
leases • No requirement to separate land
• Land is treated as separate lease • Not necessarily a physical asset
• Generally is a physical asset • Measurement
• Measurement • Exempt low value of less than $5000
• No explicit low value (use capitalization • Allows alternative valuation bases
threshold)
• Variable Payments
• Variable Payments • Measure again if index rate changes
• Do not measure again • No separate guidance for private
• Private companies guidance companies
• Statement of Cash Flows • Statement of Cash Flows
• Interest is operating activity • Interest classed optionally as operating, investing,
or financing activities
• Amortization is financing
• Impairment follows IASB
• Impairment follows FASB
• Transition
• Transition • Adopt early if also adopting new Revenue
• Adopt early allowed Recognition standard
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Topics
• Overview
• ASC842 Leases (United States)
• IFRS16 Leases (International)
• US vs International differences
• Impact
• Next Steps
• Summary
Start of first section:
List the main points in your presentation and insert this slide at
the start of each new topic. Move the highlighted box down for
each new section. This divides your presentation into easy to
follow sections.
26
Transition Dates
27
Who is affected?
http://explore.leaseaccelerator.com/wp-content/uploads/2016/01/Who-is-Most-Impacted-by-the-New-Lease-Accounting-Standards-d.pdf
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What is the Impact on Processes & Income
• Business processes
• Creates a high volume of new
assets
• Value from present value
calculations
• Income statement
• Lessee – EBIDTA may improve
• Lease expense decreases
• Interest expense increases
• Amortization expense increases
• Lessor – EPS timing changes
• Interest revenue may increase
• Longer lease life spreads out
timing
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What is the Impact on the Balance Sheet & Disclosures
• Balance sheet
• Lessee – ROI reduced
• Right-of-use assets increase
• Debt covenants may be
impacted
• Disclosure
• Operating leases removed from
footnotes
• Replaced with extensive
qualitative and quantitative
explanations of judgement
30
Topics
• Overview
• ASC842 Leases (United States)
• IFRS16 Leases (International)
• US vs International differences
• Impact
• Next Steps
• Summary
Start of first section:
List the main points in your presentation and insert this slide at
the start of each new topic. Move the highlighted box down for
each new section. This divides your presentation into easy to
follow sections.
31
Next Steps
32
Early Assessment
• Expert examination of classification changes
• Review existing leases for classification changes
• Do you have the right data to assess the new standard?
• Need to separate lease and non-lease components
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Implementation Assessment
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SAP Solutions Review
• Cross-system integration
35
Other Solutions to Review
36
Topics
• Overview
• ASC842 Leases (United States)
• IFRS16 Leases (International)
• US vs International differences
• Impact
• Next Steps
• Summary
Start of first section:
List the main points in your presentation and insert this slide at
the start of each new topic. Move the highlighted box down for
each new section. This divides your presentation into easy to
follow sections.
37
Key Point to Take Home
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Resources
• www.ifrs.org
• http://www.ifrs.org/Current-Projects/IASB-
Projects/Leases/Documents/IFRS_16_project-summary.pdf
• www.fasb.org
• http://www.fasb.org/jsp/FASB/Document_C/DocumentPage?cid=11761
67901010&acceptedDisclaimer=true
• www.iasb.org
• International Accounting Standards Board (IASB)
• www.iasb.org/IFRSs/IFRs.htm
• International Financial Reporting Standards (IFRS)
• http://asc.fasb.org
• Accounting Standards Codification (ASC)
• www.sdn.sap.com/irj/bpx/ifrs
• SAP community forum for IFRS discussions and information
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Questions
Kent Bettisworth
BETTISWORTH & ASSOCIATES, INC.
713-467-8374
kent@bettisworthassociates.com
www.bettisworthassociates.com
Q&A
40
Disclaimer
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