1. Preparing for the New Lease Accounting Standards
Lessons Learned by
Early Adopters
Preparing for the New Lease Accounting Standards
Presented by:
Louis J. Battagliese, Jr., SIOR and Catherine Swift Sennett, Esq.
Jackson Cross Partners LLC

2. Outline Highlights of the Standard State of Readiness
Organizational Awareness
Data Integrity Process
From Discovery to Go Live
Different Approaches
Design Considerations
International Challenges
Reconciliation & Modeling
Compliance

3. New Lease Accounting Highlights
All Leases on the Balance Sheet
Right of Use (ROU) – Asset & Liability
Different Standards for FASB (ASC 842) & IASB (IFRS 16)
Determination of Likely Term may include option periods
Transition Date 1st FY after 12/18 (Public) 12/19 (Private)
Date of Initial Inception US GAAP 2 year Comparative
IFRS Option “Cumulative Catch-up”
Maintain Dual Reporting 1/1/17 – 3/31/19 or 1/1/18 – 3/31/20
Different Expense Presentation – Negative Equity impact

4. Update on Readiness
Nearly 90% of respondents said they are either somewhat or very familiar with the standards, with 33% saying they are very familiar and have closely followed the FASB and IASB board activities.
Among all respondents, 83% said they have not started to create a budget for meeting the new standard. Just 5% reported that that they have designated more than $500,000 over the next three years to implement the new standard, and not earlier, with estimates of up to $5 million.
While 50% of all respondents have yet to take steps to prepare for the new standard, 11% have started to perform a readiness assessment and another
7% said that their project team has begun to create an inventory of lease data.
Nearly 75% of all respondents expect to have significant or moderate difficulty developing policies, processes and internal controls, as well as getting through the first year audit.
A majority of respondents said they rely on spreadsheets to track and account for leases. More than 80% are still evaluating technology options, including 29% who have no current system for tracking leases.
Nearly 60% of all respondents said they expect either a moderate or significant impact on their balance sheets and on their financial statement disclosures.
Source: Financial Executives Research Foundation/ EY Survey 6/16

5. Organizational Awareness
Real Estate
Finance & Accounting
Legal
Operations
Technology
Cross Functional impacts
Sponsorship & Leadership
Accounting moves to front of process
Decision & Change Management
Documented approval process
Income Statement and Balance Sheet
System of Truth
Lesson Learned: CROSS FUNCTIONAL TEAM is critical

6. Data Integrity Lesson Learned: Design a centralized, Auditable process
Data Validation
Manual Audit
Data Migration
Abstraction / Supplemental Abstraction
On Going Maintenance
Load & Testing
Reconciliation
Data Integrity
Defining the Universe
Document & Data Discovery
Language Requirements
Document Reconciliation
Data Alignment
Data Normalization
Gap Analysis
Lesson Learned: Design a centralized, Auditable process

7. Data Integrity Process
Leases
Subleases
Amendments
Easements
Estoppel
Lease Files
ERP System
Current
Lease
Admin
JCP
REViewer TM
General Ledger Accounts
Excel
Files
Accounts Payable
Other Information
Vendors
Databases
Document Reconciliation
Data
Aggregator
Data
Aggregator
Data Mapping & Normalization
Data Mapping & Normalization
JCP / Data
Normalizing Tool
TARGET
SYSTEM
Data Validation & Abstraction
Validated & Formatted Lease
Data Set

8. Data Integrity Approaches
Establishing Audit Standards
Exception Reporting & Resolution
Migration vs. Abstraction
Manual Audit
QC Review
Reconciliation
Lesson Learned: Don’t Wait for System Implementation to start on data.

9. System Design Considerations
Configuring vs. “Out of Box”
Solving for Too Many Variables
Phased Approach
New System / New Processes
Get Early Wins
Dealing with “Too Complicated”
System Options
Lease Admin Systems
IWMS (Integrated Workplace Management Systems)
Lease Reporting Systems
ERP (Enterprise Reporting Platform) Integrations
Lesson Learned: Avoid Over Design, Phase Additional Functionality

10. International Challenges
Language
Culture, Process, Time Zones
Property Law
Decentralization / M&A
Variances from US Approach
Technical Differences IFRS / FASB
Lesson Learned: International Takes More Time

11. International Approach
International Challenges
Domestic Approach
International Approach
Define the Universe
Define the Universe
Change Management / Maintenance
Document Assembly
Document Reconciliation
Document Assembly
Lease Abstraction
Document Reconciliation
Change Management / Maintenance
Lease Abstraction

12. Reconciliation & Modeling
Reconciling with ERP
Cost Segregation
System Integration
Modeling Likely Term Variability
Lease vs. Own
Approvals and Decisions
Lesson Learned: Different Deal Terms will affect financials.

13. Compliance Compliance requirement FY 2019/2020
Reporting requirement FY 2017/2018
GAAP & IFRS differences
Transition Accounting
Straight-line accrual balances
Sale / Leaseback changes

14. Lesson Learned: Right, Fast, & Cheap – You can only have 2 of 3!
Summary
Cross Functional Team
Data Integrity is Critical
Consider Phased Implementation
Beware of Over Design
Leave Time for International
Data Prep Can Run Parallel
Strategy can impact financial results
Lesson Learned: Right, Fast, & Cheap – You can only have 2 of 3!

15. Questions & Discussion
Louis J. Battagliese, Jr. SIOR
Catherine S. Sennett, Esq.