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Real. World. Experience. www.vestapartners.com
REAL. WORLD. EXPERIENCE.
NORTH AMERICA ASIA PACIFIC MIDDLE EAST EUROPE
SAP REAL ESTATE MANAGEMENT (RE-FX)
New Leasing Standards at a Glance
A Vesta Partners Publication
Real. World. Experience.
Vesta Partners is a global professional services firm focused on SAP EAM solutions for customers in asset intensive industries
Real. World. Experience.
DEEP DOMAIN EXPERIENCE
Vesta Partners has deep domain experience in asset intensive industries
CPGEnergy & Utilities
Facilities Life Sciences
Mining Oil & Gas Transportation
Real. World. Experience.
WHY INTRODUCE NEW LEASE ACCOUNTING STANDARDS?
Creating a New, Global Converged Standard
In the aftermath of Enron and WorldCom’s collapse in 2001/2002, the U.S. Securities and Exchange Commission’s (SEC) began investigating their off-balance sheet transactions, and they discovered a loophole with operating leases. The SEC asked the Financial Accounting Standards Board (FASB) to work with the International Accounting Standards Board (IASB) to develop a new standard that would provide transparency on companies’ lease assets and liabilities.
Started as a joint project, IASB and FASB each published their own standards on January 13, 2016 and February 25, 2016, respectively:
IASB’s IFRS 16 leasing standard is mandatory from January 01, 2019
FASB’s US GAAP ASC-842 is mandatory from the fiscal year after December 15, 2018
Both standards mandate that real property and equipment leases be recorded on a balance sheet
Real. World. Experience.
NEW LEASE ACCOUNTING STANDARDS USHER IN A NEW ERA
New Leasing Standards
• Impacts every organization that leases real property and / or equipment
• Standards impact both public and private companies
Public Companies – mandatory from 01/2019 onwards
Private Companies – mandatory from 01/2020 onwards
US GAAP ASC-842 & IFRS 16
Real. World. Experience.
SAP RE-FX-LA (LEASE ACCOUNTING)
SAP has developed an integrated solution (RE-FX-LA) that simplifies compliance with US GAAP ASC-842 and IFRS 16 lease accounting standards
Leasing Property(non-movables)
Other Than Property(equipment, movables)
Lessor
SAP Real Estate Management(enhanced for IFRS 16 and
US GAAP ASC 842)
SAP Leasing
Lessee(Biggest impact of IFRS 16
US GAAP ASC 842)
SAP LeaseAdministration by Nakisa
1
3
2
4
Real. World. Experience.
INTEGRATED LEASING SCENARIO FOR REAL PROPERTY MANAGEMENT
7
Contract Management
Multi-GAAP Posting
Valuation and Classification
Different lease types
Leasing partners
Subject of agreement: cost center, property, agreements ….
Terms and conditions for notice and renewal options (validity)
Lease payment cash flow with full integration
Critical dates and reminders
Documents management
Multi-GAAP enabling (US GAAP ASC-842, IFRS 16)
Manage Right-of-Use assets and liabilities
Customer / Vendor accounting
Post depreciation and repayments
Lease payments
Controlling and Profit Center Accounting
Classification and evaluation rules
Calculate and report of Net Present Value, Depreciation, Repayment and Interest
Change management / re-valuation
Support transition scenarios
Create / link to Fixed Assets
Real. World. Experience.
HOW CAN VESTA HELP?
Vesta can leverage our deep domain experience in asset intensive industries, including geographical enablement (SAP Geo Framework), to help customers become compliant with the new leasing standards.
Prepare & PlanImplement Business Processes,
Systems, & Controls
Capture & Manage leases & Analyze
Impact
US GAAP ASC 842
IFRS16 Go-live
• Setup internal project
• Analyze & plan IT landscape
• Define business process & change management roadmap
• Analyze and (re-) design business processes impacted
• Implement changes (Change Management)
• Upgrade SAP Systems
• SAP Lease Contract Management* installation & initial configuration
• SAP Lease Contract Management* customer-specific enhancements
• Capture, create and manage relevant leases
• Analyze leases
• Estimate balance sheet impact
• Go-live with IFRS 16 and US GAAP ASC 842
*SAP Lease Contract Management Refers to functionality to handle lease-ins within SAP RE-FX in conjunction with SAP FI, SAP FI-AA.
Real. World. Experience.
WHAT IS INVOLVED?
Property leases must be reported on balance sheets as assets and liabilities.
This means that leases need to be capitalized.
Signed lease (obligation to pay rent) = Lease Liability
Asset (ability to use space in a building) = Right-of-Use (RoU) AssetReal Estate Contract
Options for Organizations
Implement RE-FX functionality [includes RE-FX contract]
Implement RE-FX contract only [New Option]
Real. World. Experience.
BASIC STEPS INVOLVED IN CREATING A CONTRACT
Create a new lease agreement (contract)
Valuate the lease
Post lease payments and valuation
Revaluate contract following a CPI adjustment or contract change
Real. World. Experience.
UNDERSTAND IMPACT OF NEW GUIDELINES
GOAL IS TO MINIMIZE THE IMPACT ON THE BALANCE SHEET
1. Capitalization term - lease term, renewal and cancelation options2. Expenses to be capitalized3. Discount rate (for calculating Present Value and Interest on lease liability)4. Deductions that are allowed5. Landlord allowances (TI, etc.)6. Initial direct costs (payments to 3rd parties, etc.)7. Impairment of Right of Use asset (reduced value in books, decide to sublease)
SAP CUSTOMERS
CONDITION VALUATION PROPERTIES
MEASUREMENT OF THE LEASING LIABILITYA = Lease Installment
E = Remaining value guarantee
D = Cash Surrender Value
S = Penalty Payment
I = Incentive
V = Subletting
MEASUREMENT OF THE RIGHT-OF-USEB = Initial Costs
R = Asset Retirement Obligation
G = Extraordinary Depreciation
OFF BALANCE-SHEET ACCOUNTINGU = Transfer Posting or Linearization
TRANSITION APPROACHC = Present Value Specified
F = Net Worth Value Specified
NOT TO CONSIDERX = Miscellaneous
Gain an Understanding of the New Guidelines
Real. World. Experience.
PARTNER AND VALUATION CASH FLOWS
Revaluate after contract’s annual CPI or percentage adjustments, as well as any other change to the contract’s cash flow
Pa
rtn
er
Ca
sh
Flo
w
Valuation Cash Flow
Financial and Fixed Assets Postings
ContractValuation
Rule
Valuation
(per relevant charge)Valuation
(per relevant charge)Valuation
(per relevant charge)
Partner-related
cash flow
Acct. doc.(Creditor)
Contr. doc.(Contract)
Tax Data
Liability
Payment
Payment
Payment
Acquisition(acquisition, difference, retirement)
Asset Acquisition
Asset Difference
Asset Retirement
Depreciation
Write-off
RoU Asset
Depreciation Document
Depreciation Document
Depreciation Document
Interest Rate
Interest Posting
Interest Posting
Interest Posting
Transfer posting
Service Cost
Service Cost
………
Special Transaction
Difference RoU & liability
Real. World. Experience.
REAL ESTATE LIFE-CYCLE
Optimize Acquire Build Operate Dispose
Plan & Optimize Investment Idea
PPM IMSolution
Acquisition
RE-FX
Construct & Refurbish
PS RE-FX PM
Real Estate Operations
Facility & Service Mgmt
RE-FX
Disposition
New Lease Accounting Standards
Real. World. Experience.
REAL ESTATE LIFECYCLE SOLUTION MAP
Accounting
Facility Management
Portfolio & Project Management
Investment & Construction
Sales & MarketingLease & Space Management
Maintenance & Repair
LeaseAdministration
Construction
Master Data
Lease Abstract
LeaseContingent
RentRent
Escalation
Service Charge
Settlement
Investment Planning
Property Acquisition
Construction Project
Sales &Marketing
Campaign Lead Opportunity
Real Estate Search
Lease Offer
Space Manage-
ment
Move Manag-ment
Room Reserv-ation
Master Data
Work Order
Energy Reporting
Asset Accounting
Project Accounting
Cost Accounting
Accounts Payable & Receive-
ables
BudgetingAccounts Payables
Cost Accounting
Real. World. Experience.
INTEGRATED SOLUTION
RE
CO
CRM
FI
AA
FM
PS
CAD
BCS
PO
NW
PM
Funds Management
Project Management
REAL ESTATE MANAGEMENT
Asset Accounting
Financials
Customer Relationship Management
Controlling
CAD/CAFM/GIS Systems
Building Control Systems
Purchase Orders
NetWeaver
Plant Maintenance
Real. World. Experience.
For more information:info@vestapartners.com(203) 517-0400
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