Post on 27-Dec-2015
transcript
Accounting Changes Snapshot
Presented by
Shawn Halladay
Managing Director
The Alta Group
March 23, 2012
Topics
The current environment What is changing? Market impact Engaging the customer Lessor concerns
The Current Environment
FAS 13 bifurcation of products
o Operating lease (off balance sheet)
o Capital lease (asset and liability)
o Bright line tests/straightforward
Off balance sheet benefits
o Financial statements/ratios
o Simplicity
o Level of decision-maker
o Affordability
What is Changing?
ED product FAS 13 product
Not retained Operating lease
Right-of-use lease Capital lease
What is Changing?
All leases are capitalized (lessee)
o Asset and liability on balance sheet
o Amortization and interest expense
Lessor and vendor accounting models are modified
o Receivable and residual approach
o Sales-type leases affected
Market Impact
•Lessor consequences and responses
•Lessor accounting requirements
Proposed accounting
changesLessee impact
Market Impact
Loss of off balance sheet financing
o Ratios and performance metrics
o Timing of expense
Additional effort
o Tracking assets and liabilities
Market shifts
o Decision process
o Transition
o Let the hunt begin!
Engaging the Customer
Engaging the Customer
Proactive approach
o Address concerns
o Share perspective
Engaging the Customer
Needs focus
o Cash flow
o Asset utilization
o Financial factors
o Tax concerns
Customer feedback
Customer resources
Lessor Concerns
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Receivable & residual approach
Lease receivable for right to receive lease payments
Allocate book value of asset between leased portion and retained (residual) portion
Asset BV x Lease receivable/FV of Asset = Derecognition Amount
Profit = Lease receivable – Derecognition Amount
Residual is accreted
Example A lessor manufactures a machine for $7,500 and enters into a 3-
year lease with annual payments due at the end of the year of $2,400. The machine’s fair value is $10,000 at lease commencement with an estimated residual value at the end of the three years of $4,770. The implicit lease rate is 7.9%, and the present value of the lease payments is $6,200.
Asset BV x lease receivable/FV of asset = derecognition amount
$7,500 x $6,200/$10,000 = $4,650 (derecognition amount)
$7,500 - $4,650 = $2,850 (allocated residual amount)
Lease receivable – derecognition amount = profit at commencement
$6,200 - $4,650 = $1,550 (profit at commencement)
Practice Issues
Loan with balloon
Sales-type lease
Receivable and residual
Receivable $ 6,200 $ 6,200 $ 6,200
Balloon/residual $ 3,800 $ 3,800 $ 2,850
Net investment $ 10,000 $ 10,000 $ 9,050
Practice Issues
Loan with balloon
Sales-type lease
Receivable and residual
Finance income $ 1,970 $ 1,970 $ 1,727
Sales profit $ 2,500 $ 2,500 $ 2,743
Net investment $ 4,470 $ 4,470 $ 4,470
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Operational Implications
Residual assets
Revenue recognition
Impairment
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Operational Implications
Modifications
Renewals/payoffs
Lessee data requests
Management reporting
Disclosure requirements
Processes, procedures, and internal controls
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System Issues
Front-end integration
Different information requirements
Different calculations
Multiple net investment links
New output
Scalability
Product Inventory
Standard economic products
Funding products
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Implementation – Planning
Project team and definition
Timeline
Systemic impact assessments
Strategic modeling
Get to work
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Micro Frame of Reference
Intermediate impact assessments
Business interpretation of changes/needs
Internal and external stakeholder buy-in
Organizational integration
Resources
Current and near-term budgets
Transition
6
Micro Frame of Reference
System impact assessment
Change analysis
Front-end versus back-end
Vendor readiness
Application hurdles
Process versus output changes
Scope resolution
6
Micro Frame of Reference
o Cutover
o Parallel/dual
o Transition
o Classification
o Mapping
o Rebooking/conversion
o Restatement
Approach
Tool availability
Implementation – Transition
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Simple versus total retrospective
Product identification
Classification difficulties
Mapping
Prior data capture
Fair value assessments
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Implementation – Planning
Project team and definition
Timeline
Systemic impact assessments
Strategic modeling
Get to work
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Conclusion
Questions and answers