UR Lease Administration Communication March 2018

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Presentation transcript:

UR Lease Administration Communication March 2018 ______________________

UR Lease Administration New Lease Standard UR Lease Administration project is currently in progress to ensure our compliance to the new lease standard for both lessee and lessor. Nearly all operating leases from off balance sheet to on balance sheet, i.e., recognize them as assets and liabilities. Real Estate Equipment Embedded Leases (Example: Consumable arrangements) Balance sheet amounts will be misstated if embedded leases are not identified and accounted for appropriately. Project status Diagnostic / data gathering phase System implementation phase Compliance date: Fiscal year beginning July1, 2019 Goal is to go live by December 31, 2018 with the lease system implementation. Note: current guidance requires embedded leases be identified and accounted for separately, since they were off-balance-sheet and did NOT have a material impact on the income statement. -Accounting Standards Codification (ASC) Topic 842 – Leases (operating or finance lease) Finance lease: Title transfer Expect to exercise purchase option Major part of remaining useful life of the asset Substantial part of fair value Specialized asset -ASC 840 – old lease standards (Operating or capital lease) 1. The lessor transfers the asset to the lessee at the end of the lease term (same as old standards) 2. The lessee is granted a bargain purchase option, where the lessee can purchase the asset at a cost that is significantly less than the fair market value of the asset. (same as old standards) 3. The lease term is for a majority of the remaining useful life of the asset. If the lease commencement date is at or towards the end of the remaining useful life, this standard would not apply. (old – 75% of useful life) 4. The present value of the lease payments and any residual value that is not reflected in the lease payments equals or exceeds substantially all of the fair value of the leased asset. (PV of pymts 90% of FV) 5. The leased asset is specialized in which the asset is expected to have no alternative use to the lessor at the end of the lease term. Key factor in gray area – “control” of use of leased asset

UR Lease Administration Next Steps Considerations for you to determine the contact person(s) in your organization: Lease: A contract by which one party conveys land, property, services and etc. to another for a specified time in return for a periodic payment. Embedded Lease: Generally, if there is an explicit/implicit asset in the contract and the customer controls use of the asset. Are there any arrangements in which UoR pays to use a portion of real estate or an asset for a specified time (e.g., 5 days a week)? If yes, please describe and estimate number of contracts. Are there any arrangements in which UoR enters into a contract to use part of a larger real estate space? If yes, please describe and estimate number of contracts. Are there any arrangements in which 3rd-party owned equipment is maintained and stored on UoR property but operated by 3rd party (e.g., ATM, Vending)? If yes, please describe and estimate number of contracts. Are there any arrangements in which a 3rd party owns and operates assets that are dedicated to UoR or to be used based on UoR's instructions (e.g., diagnostic machines)? If yes, please describe and estimate number of contracts. Are there any arrangements in which equipment is provided free of charge to UoR as long as consumables are purchased (e.g., reagents, test strips)? If yes, please describe and estimate number of contracts. Any additional potential embedded leases resulting from service/supply arrangements, data centers, warehousing agreements, and/or any arrangement where there could potentially be an implied leased asset.

UR Lease Administration Next Steps Set up working sessions / education / data gathering for lease arrangement review to obtain a complete lease inventory For more information and the timeline that follows this project, visit: http://www.rochester.edu/adminfinance/urfinancials/ur-lease-administration-project/. If you have any questions or concerns, contact us at: URLeaseAdministration@ur.rochester.edu.

UR Lease Administration Questions ? ? ?