SAP REAL ESTATE MANAGEMENT (RE-FX)
New Leasing Standards at a Glance
A Vesta Partners Publication
REAL. WORLD. EXPERIENCE.
NORTH AMERICA ASIA PACIFIC MIDDLE EAST EUROPE
Real. World. Experience. www.vestapartners.com
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
Energy &
CPG Facilities Life Sciences
Utilities
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
US GAAP ASC-842 & IFRS 16
• 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
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 Other Than Property
(non-movables) (equipment, movables)
Lessor 1 2 SAP Leasing
SAP Real Estate Management
(enhanced for IFRS 16 and
US GAAP ASC 842)
Lessee SAP Lease
(Biggest impact of IFRS 16 3 4 Administration
US GAAP ASC 842) by Nakisa
Real. World. Experience.
INTEGRATED LEASING SCENARIO FOR REAL PROPERTY MANAGEMENT
Different lease types
Leasing partners
Subject of agreement: cost center, property,
Contract agreements ….
Management Terms and conditions for notice and renewal
options (validity)
Lease payment cash flow with full integration
Critical dates and reminders
Documents management
Classification and evaluation rules
Calculate and report of Net Multi-GAAP enabling (US GAAP
Present Value, Depreciation, ASC-842, IFRS 16)
Repayment and Interest Manage Right-of-Use assets and
Change management / re- Valuation and Multi-GAAP liabilities
valuation Classification Posting Customer / Vendor accounting
Support transition scenarios Post depreciation and repayments
Create / link to Fixed Assets Lease payments
Controlling and Profit Center
Accounting
Real. World. Experience.
7
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.
Capture & Manage US GAAP
Implement Business Processes,
Prepare & Plan leases & Analyze ASC 842
Systems, & Controls
Impact IFRS16 Go-live
• Setup internal • Upgrade SAP Systems • Analyze and • Capture, create and • Go-live with
project • SAP Lease Contract (re-) design business manage relevant leases IFRS 16 and US
• Analyze & plan IT Management* installation processes impacted • Analyze leases GAAP ASC 842
landscape & initial configuration • Implement changes • Estimate balance sheet
• Define business • SAP Lease Contract (Change Management) impact
process & change Management* customer-
management specific enhancements
roadmap
*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
Real Estate Contract
Asset (ability to use space in a building) = Right-of-Use (RoU) Asset
Options for Organizations
Implement RE-FX functionality
Implement RE-FX contract only [New Option]
[includes RE-FX contract]
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
CONDITION VALUATION PROPERTIES
MEASUREMENT OF THE LEASING LIABILITY
A = Lease Installment
E = Remaining value guarantee
D = Cash Surrender Value
SAP CUSTOMERS S = Penalty Payment
I = Incentive
Gain an Understanding of the New Guidelines V = Subletting
MEASUREMENT OF THE RIGHT-OF-USE
B = Initial Costs
GOAL IS TO MINIMIZE THE IMPACT ON THE BALANCE SHEET R = Asset Retirement Obligation
G = Extraordinary Depreciation
1. Capitalization term - lease term, renewal and cancelation options
2. Expenses to be capitalized OFF BALANCE-SHEET ACCOUNTING
3. Discount rate (for calculating Present Value and Interest on lease liability) U = Transfer Posting or Linearization
4. Deductions that are allowed
5. Landlord allowances (TI, etc.) TRANSITION APPROACH
6. Initial direct costs (payments to 3rd parties, etc.) C = Present Value Specified
7. Impairment of Right of Use asset (reduced value in books, decide to sublease) F = Net Worth Value Specified
NOT TO CONSIDER
X = Miscellaneous
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
Valuation Cash Flow
Valuation Valuation
Contract Valuation
Rule (per relevant charge)
Valuation
(per relevant charge)
(per relevant charge)
Partner Cash Flow
Write-off
Partner- Acquisition
Interest Transfer Special
related Liability (acquisition,
Depreciation RoU Asset
difference, Rate posting Transaction
cash flow retirement)
Acct. doc. Asset Depreciation Interest Service
Payment Difference
(Creditor) Acquisition Document Posting Cost
RoU &
Contr. doc. Asset Depreciation Interest Service liability
Payment
(Contract) Difference Document Posting Cost
Asset Depreciation Interest
Tax Data Payment ………
Retirement Document Posting
Financial and Fixed Assets Postings
Real. World. Experience.
REAL ESTATE LIFE-CYCLE
Optimize Acquire Build Operate Dispose
Construct & Real Estate Facility &
Plan & Optimize Investment Idea Acquisition Disposition
Refurbish Operations Service Mgmt
PPM IM RE-FX PS RE-FX PM RE-FX
Solution
New Lease
Accounting
Standards
Real. World. Experience.
REAL ESTATE LIFECYCLE SOLUTION MAP
Portfolio & Project Investment & Lease & Space Maintenance &
Sales & Marketing
Management Construction Management Repair
Investment Property Construction
Construction
Planning Acquisition Project
Sales &
Campaign Lead Opportunity
Marketing
Service
Lease Master Lease Real Estate Contingent Rent
Administration
Lease Offer Lease Charge
Data Abstract Search Rent Escalation
Settlement
Space Move Room
Facility Master Work Energy
Management
Manage- Manag- Reserv-
Data Order Reporting
ment ment ation
Accounts
Asset Project Cost Payable & Accounts Cost
Accounting Budgeting
Accounting Accounting Accounting Receive- Payables Accounting
ables
Real. World. Experience.
REAL ESTATE MANAGEMENT
RE
Plant Maintenance PM CO Controlling
NetWeaver NW CRM Customer Relationship
Management
INTEGRATED
Purchase Orders PO FI Financials
SOLUTION
Building Control Systems BCS AA Asset Accounting
CAD FM
CAD/CAFM/GIS Systems Funds Management
PS
Project Management
Real. World. Experience.
For more information:
[email protected]
(203) 517-0400
Real. World. Experience.
