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ASU 2016-02 Leases

ASU 2016-02 Leases. When is it effective?. Non Public Entities must adopt beginning in 2020. Don’t Delay Start Planning now. Suggestions for Implementation Form task force or steering committee; designate individual to champion – engage entire organization

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ASU 2016-02 Leases

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  1. ASU 2016-02 Leases

  2. When is it effective? Non Public Entities must adopt beginning in 2020

  3. Don’t Delay Start Planning now • Suggestions for Implementation • Form task force or steering committee; designate individual to champion – engage entire organization • Learn the standard - Financing vs. Operating leases • Compile inventory of leases • Identify potential changes to internal controls • Assess Technology requirements • Discuss with stakeholders • Audit Committee • Lenders etc. May require modifications to covenants • Decide on transition method – including practical expedients • Post adoption considerations

  4. ASU 2016-02 All leases now on Balance Sheet

  5. Definition of a lease • Agreement that conveys the right to control the use of an identified asset for a period of time in exchange for consideration; • Right to obtain substantially all the economic benefits from the asset • Right to direct the use of the asset

  6. What leases to you have? • Copiers, computers and other small office equipment • Autos • Machinery • Real Estate • Are there leases embedded in service contracts? Maybe

  7. Internal Controls • How are leases processed/approved today? • How are they tracked/maintained • Manually or electronically? • Centralized or by location/business unit? • How are modifications or amendments handled? • Reporting to lessors?

  8. IT Considerations • Volume of lease transactions • Operating leases - principal and interest treated differently than prior GAAP • Can fixed assets system handle depreciation? • Disclosure requirements Is Excel Enough?

  9. Communications • Have discussion begun with; • Audit committee • Lenders – do covenants need to be rewritten? • Lessors • modification to existing agreements • do you need information? • Within Company • Legal, Tax, Financial Planning & Analysis, Treasury, Facilities, Procurement • Employee Training

  10. Transition • Restate 2019; adjustment to 1/1/2019 Retained Earnings • consistent disclosures • consistent ratios & metrics (EBIT, EBITDA, GP) • Do not restate 2019; adjustment to 1/1/2020 Retained Earnings • duplicate disclosures/systems & methods – need to maintain old GAAP disclosures • inconsistent ratios & metrics • Practical Expedients Package - all or none • Whether an expired or existing contracts are or contain leases • Classification of any expired or existing lease • Indirect Cost for any existing leases

  11. The Road Ahead • Adoption is the race to the starting line • Solutions need to comprehend post adoption • How to handle • New leases & terminations of existing • Modifications • Disposals / return of equipment • Changes to office space, etc. • Communication among parties

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