implementing the new lease accounting standard in sap ... · pdf fileutilize real estate, ......

Internal Audit, Risk, Business & Technology Consulting

Implementing the New Lease Accounting Standard in SAP Landscapes

The Road to Compliance

Lease Accounting Standard Effective Dates

Implementing the New Lease Accounting Standard in SAP Landscapes · 1protiviti.com

A new lease accounting standard will become a requirement for companies starting on

January 1, 2019. This paper provides background on the standard and recommends a

specific technological solution, SAP Lease Administration by NAKISA, for lessees, to allow

for process automation, consistent controls, transparency for lease reporting, and analysis of

asset utilization.

Introduction

Asset leasing is a common business practice among

companies in all industries. It allows businesses to

utilize real estate, equipment, transportation assets

and technology to support operations and functions

on a day-to-day basis while providing flexibility and

control over working capital. Traditional accounting

rules require leases to be classified as financial (cap-

italized on the balance sheet) or operating (expensed

in the profit and loss [P&L] statement), based on the

intended use and ownership of the underlying asset.

Historically, this provided a structure that allowed

off-balance sheet financing, affecting the company’s

debt and liability posture. To help address this issue

and ensure consistency in financial reporting, the

Financial Accounting Standards Board (FASB) and

the International Accounting Standards Board (IASB)

jointly developed a new standard, ASC 842, as part of

a global convergence effort. This new standard will

require lessees to recognize a lease liability and a right-

of-use asset for all leases (except those with a duration

of less than one year) when the underlying asset

becomes available to the lessee. The introduction of

the new standard requires both lessees and lessors to

evaluate its effect on the business processes, policies,

financial statements, technology and internal controls

within their company.

ASC 842 issuedFebruary 25, 2016

Effective Date:January 1, 2019*

2016

Current Standard New Standard

2017 2018 2019

Financial Reporting

* Note: Non-public companies have until January 1, 2020 to comply with the new standard.

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Lease Accounting Compliance Considerations

In order to comply with the new lease accounting rules, companies must define a comprehensive approach

and compliance road map that not only include the policies and procedures for processing assets, but also the

technology and automated controls to support the updated accounting practices and comply with reporting

requirements. The table below outlines the key considerations along this process, with guiding questions to

address each consideration.

COMPLIANCE CONSIDERATIONS KEY QUESTIONS

Understand the new regulation

• Do you have a documented accounting policy for leases?

• Do you understand the impact of the accounting standards on your business, including statutory reporting considerations?

• Have you started to address the new leasing standard?

• Have you evaluated the need for new judgments, estimates and calculation requirements under the new standard?

Create an inventory of leases

• Do you regularly lease property, plant or equipment?

• Approximately how many leases do you have at any given point in time for each of these categories — property, plant, equipment type (e.g., copiers, computers, vehicles)?

• Do you know the locations of your current leases?

• Are the majority of the lease terms longer than a year?

• Do you engage in financing arrangements?

• Do you have all the required lease data electronically?

• Do you have supplier arrangements or service contracts that provide the right to use certain assets?

• Do you have revenue arrangements with embedded leases where you are required to separate lease and non-lease components?

• Are the majority of your leases accounted for as operating leases?

• Do you have sale leaseback arrangements?

Assess the technology

• Is your existing leasing tool compatible with the new standards?

• Does your existing leasing tool integrate fully with your ERP system?

Continued...



COMPLIANCE CONSIDERATIONS KEY QUESTIONS

Evaluate reporting implications

• What changes are required for forecasting and budgeting under the new standard?

• What communication plans are required for stakeholders?

• What will be the reporting differences for multi-jurisdictional reporting?

Evaluate other implications

• Have you evaluated the process and internal control implications of the new standard?

Develop an implementation timeline

• Are you a private or a public company?

• Do you know the deadlines for your type of company?

• Do you plan on being an early adopter of the standard?

• Are you allocating enough time to the transition in order to meet the deadline?

Recognize data ownership and third-party involvement

• How prepared are your third-party vendors for the new regulation?

• Are the leases with your smaller third-party vendors properly formalized?

Manage your resources

• Do you have the right talent and expertise to manage the transition?

• What training is required for finance and non-finance personnel, including the board, audit committee, senior management and investors?

Avoid the risk of noncompliance

• Do you understand the implications of not accurately complying with the new standard?


SLAN Solution Offerings


To effectively address the new lease accounting standards, companies are turning to SAP Lease Administration by

NAKISA (SLAN) because it is the only solution that can effectively manage all types of leases.1 The SLAN solution

is integrated with the SAP core application and manages the full lease lifecycle for lessees, from initiation to

termination of the lease. This includes:

• Lease determination

• Data capturing

• Lease agreement and contract management*

• Assignment of lender, supplier and fixed assets*

• Classification, amortization, accruals and payments*

• Event management and workflows

• Equipment tracking

• Standard lease-related reporting and

disclosure reporting

* Integrated with SAP

SAP Lease Administration by NAKISA® (SLAN)

End-to-End Lease Management

• Designed to provide visibility into your lease and revenue contract exposure

• Single repository for all leases and contracts

Accounting and Compliance

• Full lease accounting capabilities, from classification, accruals and payments to disclosure reporting

• Consolidates and captures all lease data, including data necessary for audit trails, in order to increase efficiency and provide higher return on lease management processes

Analytics and Reporting

• Disclosure reporting is compliant with IFRS 16 and ASC 842

• Provides view of the entire lease portfolio from multiple perspectives with dynamic search and dashboards

1 SLAN is part of SAP’s package of automated lease solutions, which includes SAP Real Estate Management and SAP Leasing.



Using a comprehensive end-to-end solution has a

number of benefits. It allows companies to be scalable

and consistent as they grow and handle complex leases

(e.g., multiple schedules), reduces the risk of penalties

due to noncompliance, provides a global view of all

lease data and the associated impact on financial

statements, and supports statutory lease reporting.

A few of the key reasons companies are choosing SAP

Lease Administration by NAKISA®:

• Product was developed jointly with SAP with

leases in mind: The solution provides a central

repository for lease contract administration

and lease reporting, thus enabling end-to-end

management and accounting for all leases on

a single platform.

• Meets SAP premium qualification requirement:

Though there are a number of lease accounting

software products on the market, only a few meet this

requirement, which tests and validates programs for

security, performance, supportability, accessibility

and documentation.

• Integrates with SAP ERP Central Component (ECC):

The solution provides native integration to the SAP

ECC environment with real-time connectivity.

This eliminates the need to build and support

custom integrations.

• Is sold and supported by SAP: This ensures that the

product will be supported long-term.

Why SLAN?



Why Protiviti?

Protiviti supports companies in meeting their

lease accounting standard requirements beyond

the capabilities that traditional contractors, system

integrators or accounting firms provide. We

bring deep cross-functional expertise in financial

accounting, business process improvement and

systems implementation, among other competencies.

This, combined with our SAP expertise and NAKISA

partner status and access to Robert Half resources

and staffing, allows us to create a uniquely qualified,

comprehensive approach to projects to comply with

the new lease accounting standard and achieve the

necessary business transformation.

We assist companies in the following areas:

Impact Assessment and Solution Design

We perform a gap analysis to understand your current

state and design the road map for implementing SAP

Lease Administration by NAKISA®.

Lease Discovery and Data Collection

The initial discovery of all the leases can be a significant

task depending on the number, locations and variety

of leases; whether they exist electronically or on paper;

and other factors. Our proven methodology, combined

with access to experienced resources from our parent

company Robert Half, allows us to efficiently identify

and capture all data from leases globally.

Process and Reporting Optimization

To maintain the lease accounting standard over the

long term, companies will need to implement new

financial policies and processes, train accounting

staff on these changes, and generate new types

of reporting based on each company’s business

requirements. Protiviti is a leader in financial

and business process optimization, and our SAP

visualization technical experts can support

reporting requirements of any complexity.

System Implementation

As a Gold partner with SAP and a leader in the SAP

compliance and finance community, Protiviti can be

your single qualified partner in the implementation of

SAP Lease Administration by NAKISA®.

Control and Process Documentation and Training

Large-scale changes to processes and controls require

retraining of individuals and significant amounts of

new documentation and training materials. Protiviti

can assist with the development of these materials,

including online learning scenarios, and facilitate

employee training sessions.

Project Management

The timelines for adoption of the new lease accounting

standard are firm, and companies increasingly are

becoming aware that the complexity is higher than

expected. Protiviti can provide project management

expertise and the required compliance, financial and

systems implementation knowledge to successfully

assist companies in meeting the deadline.



ABOUT PROTIVITI

Protiviti is a global consulting firm that delivers deep expertise, objective insights, a tailored approach and unparalleled collaboration to help leaders confidently face the future. Protiviti and our independently owned Member Firms provide consulting solutions in finance, technology, operations, data, analytics, governance, risk and internal audit to our clients through our network of more than 70 offices in over 20 countries.

We have served more than 60 percent of Fortune 1000® and 35 percent of Fortune Global 500® companies. We also work with smaller, growing companies, including those looking to go public, as well as with government agencies. Protiviti is a wholly owned subsidiary of Robert Half (NYSE: RHI). Founded in 1948, Robert Half is a member of the S&P 500 index.

CONTACTS

Toni LastellaManaging Director, New [email protected]

Aric QuinonesManaging Director, Atlanta+1.404.240.8376 [email protected]

Steve Cabello Managing Director, Phoenix+1.213.327.1470 [email protected]

N A K I S A L O G O S - P R O D U C T S H O R I Z O N TA L


© 2017 Protiviti Inc. An Equal Opportunity Employer M/F/Disability/Veterans. PRO-1017-103112 Protiviti is not licensed or registered as a public accounting firm and does not issue opinions on financial statements or offer attestation services.

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