Lease Accounting Under IFRS16/ASC 842 Made Easy

The implementation deadline for the new IFRS 16/ASC 842 lease accounting standards is rapidly approaching.  The new standards will require organizations to report and disclose all lease obligations for buildings, office space, motor vehicles and other equipment, and reclassify them as assets and liabilities.  Does your organization have an implementation plan and adequate system in place that will meet the new requirements?

This was the focus of a recent webinar sponsored by OneStream Software.  Hosted by OneStream’s Craig Colby, the webinar featured lease accounting experts Christian Wetterwald of OneStream, Pascal Walk and Jos Brouwer from Agium, a OneStream partner based in the Netherlands.  The webinar included a discussion of the new lease accounting guidelines, an overview of OneStream’s Lease Accounting Solution and a demonstration.  Here are the highlights from the webinar.

The Clock Is Ticking on New Lease Accounting Guidelines

The new IFRS and FASB guidelines for lease accounting are described under IFRS 16 and US GAAP ASC 842.  The big change is that all leases will now be recognized as assets and liabilities, unless the lease term is 12 months or less, or the underlying asset has a low value.  For the details on the differences between IFRS 1 and ASC 842, download this PWC Lease Accounting Guide.

The changes will require companies to do the following:

• Track the details on all lease contracts (buildings, cars, office space, equipment, etc.)
• Make the appropriate calculations
• Generate the appropriate journal adjustments to accurately reflect leases on the balance sheet and income statement

The new IFRS guidelines are effective for reporting periods beginning after January 1, 2019.  For organizations reporting under US GAAP, ASC 842 is effective for public companies for reporting periods after December 15, 2018, and for other companies a year later.

Too Complex and Risky for Spreadsheets

The usual response for organizations when they’re faced with new accounting guidelines such as this is to address the problem using spreadsheets.  But the new lease accounting guidelines are a bit too complex for spreadsheets.

There can be hundreds to thousands of lease contracts across the various operations of a large, global company.  These must all be captured and categorized.  Then calculations must be run.  Plus appropriate journal adjustments must be made to report the asset, liability and periodic amortization of the lease. The problem with this is that most General Ledger (GL) systems aren’t designed to manage lease details – or the corresponding calculations.

The good news is that OneStream’s corporate performance management (CPM) platform is perfectly suited for this type of accounting and reporting.

OneStream XF is a unified SmartCPM^TM platform that supports financial consolidation, planning & forecasting, data quality, and reporting & analysis – all in a single application that can be deployed on-premise or in the cloud.  Hundreds of mid-sized to large enterprises around the world have already replaced legacy CPM applications from Oracle/Hyperion, SAP and others with a single instance of OneStream XF – and they’ve reaped major cost savings.

In addition to the OneStream XF (i.e., extended Finance) platform, OneStream offers the XF MarketPlace.  The MarketPlace makes value-added solutions built for the OneStream XF platform available as free downloads for customers – and operates similar to the iPhone App Store.  Customers can download the solutions, install and configure them, and quickly and easily extend the value of the OneStream XF platform.

Popular XF MarketPlace solutions include Account Reconciliations Manager, People Planning, Capex Planning, Close Manager and many productivity tools.  One of the newer solutions is the Lease Accounting Solution, also known as Contract Compliance.

The Power of Relational Blending

One of the secret sauces in the OneStream XF platform is something called “Relational Blending.”  This is the ability of the system to capture and store detailed transactional information, then roll it up into a multidimensional cube for reporting and analysis.  The power of this feature is fully utilized with the Lease Accounting Solution.

OneStream Software, working in conjunction with its partner Agium, has created an IFRS 16/ASC 842 Lease Accounting Solution that can be quickly implemented as an extension of the OneStream XF platform.

It leverages the Relational Blending capabilities of OneStream XF through the following steps:

• Captures all the applicable details for hundreds of lease contracts
• Calculates principal and interest vs. the lease payment
• Calculates the present value of the lease
• Generates the applicable journal entries to record and amortize the asset

The journal adjustments can then be loaded into OneStream XF, or exported to the customer’s GL/ERP or data warehouse.

The solution also provides extensive reporting and analysis capabilities:

• Reports highlighting the current and future impacts of the new guidelines on the balance sheet and income statement
• Prior period impacts for retrospective implementation
• Comparison of financial results under the old vs. new lease accounting guidelines

If your organization needs to have an implementation plan and adequate system in place that will meet the new requirements for IFRS 16/ASC 842 lease accounting standards, OneStream’s Lease Accounting Solution could be the answer. Here are its key benefits:

• Provides direct and accurate data integration of all lease information
• Saves time and effort in creating an IFRS 16/ASC 842 Lease Accounting Solution
• Includes full audit trails for all balance sheet and income statement adjustments
• Provides full reporting of balance sheet and income statement with drill-through to lease source details
• Offers ease of administration and updates as new leases are added or existing ones are terminated
• Leverages a platform that can be extended to address additional compliance requirements

Learn More

To learn more about the OneStream Lease Accounting Solution, watch the replay of the webinar or visit the OneStream XF MarketPlace.  And feel free to contact OneStream if you need help implementing the new lease accounting guidelines.