JD Edwards EnterpriseOne: The New Lease Accounting Standards

A More Efficient Lease Management Solution

Consistent with current Generally Accepted Accounting Principles (GAAP), the recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee primarily will depend on its classification as a finance or operating lease.

However, unlike current GAAP which requires only capital leases to be recognized on the balance sheet, the new Accounting Standard Update (ASU) will require both types of leases to be recognized on the balance sheet.

The ASU will also require disclosures to help investors and other financial statement users better understand the amount, timing, and uncertainty of cash flows arising from leases. These disclosures include qualitative and quantitative requirements, which provides additional information about the amounts recorded in the financial statements.

The accounting by organizations that own the assets leased by the lessee, also known as lessor accounting, will remain largely unchanged from current GAAP. However, the ASU contains some targeted improvements that are intended to align, where necessary, lessor accounting with the lessee accounting model and the updated revenue recognition guidance issued in 2014.

Oracle JD Edwards Lease Management

The JD Edwards EnterpriseOne Lease Management solution provides programs and processes that enable lessees of property and non-property assets to accurately and efficiently account for those assets on their balance sheets.

The system uses the guidelines defined in these accounting standards issued by the International Accounting Standards Board (IASB) and the Financial Accounting Standards Board (FASB):

• IFRS 16

• ASC 842

These standards require lessees of property and non-property assets to account for long-term leased assets, and the liability associated with them on their balance sheet. These assets are called Right Of Use (ROU) assets. This standard provides investors and creditors with more transparency into long-term leases of assets.

Balance Sheet Lessee Accounting Process Overview

The JD Edwards EnterpriseOne Lease Management solution uses existing and enhanced capabilities across the ERP footprint. This includes using G/L, A/P and A/R features available in Financial Management systems, defining lease terms and conditions in the Real Estate Management system, and asset tracking in the Fixed Assets system. Together, they provide a single solution for managing leases under the new accounting standard.

This solution is available to customers with a JD Edwards EnterpriseOne Financials license, which gives them a restricted use license of Real Estate Management. This is the main system used to manage leases, lease-related payments and processing for both property and non-property assets.

Lease management features provide automated processes to create amortization schedules, periodic adjustments to the lease liability, and right of use asset balance sheet accounts over the life of a lease. These features minimize accounting errors and streamline month-end close and reporting activities.

Additionally, the solution enables users to:

• Upload property and non-property lease-related data into the EnterpriseOne system.

• Create and post journal entries into an alternate ledger for retrospective reporting requirements.

• Handle complex lease scenarios involving free rent and stepped payment amounts.

• Easily identify leases or assets that are overdue for lessee accounting processing using visual cues.

To begin using this solution, one must define lessee accounting defaults using system constants, bill codes, and AAIs used specifically for lessee accounting. When setup is complete, and you are ready to begin using the new standard, you can activate lessee accounting in the constants. Users then enter property assets in the Real Estate Management system and enter non-property assets in the Fixed Assets system. Once the assets are created, they can be added to lessee leases in the Real Estate Management system.

Users can then:

• Specify the lease classification for each asset, choosing operating lease, finance lease, or specifying that the asset should not be included on the balance sheet.

• Enter recurring and manual billing/payment information for each asset.

• Generate ROU asset and lease liability amortization schedules.

•  Create lease commencement journal entries, which provide the initial lease liability and ROU asset journal entries you need to account for your leased assets.

• Create monthly balance sheet journal entries to adjust the lease liability, ROU assets, and other accounts.

To facilitate the lessee accounting process, pre-configured notifications and form personalizations have been delivered. Additionally, Lease Administrator and Lease Account Manager UX One Roles are available.

Keep Reading: JD Edwards Financial Best Practice Series