NetLease - Lease Reporting And Disclosures

Overview

BACKGROUND AND USE CASE: NetLease was purpose-built to meet the reporting and disclosure requirements of ASC 842 and IFRS 16.

The following are a listing of the key Financial Statement Reporting Requirements and how NetLease supports each. Note that the initial account setup is important—especially when identifying where on the financials the lease accounting transactions should be reflected.

Requirement

Standard

How NetLease Supports

Statement of Financial Position Requirements:

Finance and Operating Lease ROU Assets must be presented separately (or disclosed) 

ASC 842-20-45

IFRS 16:47

  • The accounts for ROU Assets and Lease Liability are assigned in initial setup
  • All NetLease reporting natively segregates Finance and Operating Leases
  • Users can additionally elect to assign separate GL accounts to each Lease Type 

Finance and Operating Lease Liabilities must be presented separately (or disclosed) 

ASC 842-20-45

  • All NetLease reporting natively segregates Finance and Operating Leases
  • Users can additionally elect to assign separate GL accounts to each Lease Type

Statement of Comprehensive Income

A lessee must present both Finance Lease and Operating Lease expenses separately, and operating lease expense must be included in income from continuing operations

ASC 842-20-45

  • All NetLease reporting natively segregates Finance and Operating Leases
  • Users assign GL accounts for each lease type and transaction category, and chart of account details and reporting hierarchies should be set for those accounts per the guidance

For Financing leases, Interest Expense on the Lease Liability and Amortization on the ROU Asset are not required to be presented as separate line items; presentation should be consistent with how they are handled for similar assets (same as previous capital lease treatment under the old standards)

ASC 842-20-45

  • Users assign GL accounts for each lease type and transaction category, and chart of account details and reporting hierarchies should be set for those accounts per the guidance 
  • NetLease also supports lease-specific reporting that segregates activity

 

IFRS 16

  • Each lease expense is assigned an account separately as part of initial configuration
  • NetLease also supports lease-specific reporting that segregates activity for lease activity only
  • Users can elect to assign separate GL accounts for each lease activity and verify their reporting hierarchies aggregate the accounts per the guidance

Variable Lease Expense Payments for Finance Leases (not included in lease liability): Deloitte highlights that they would accept presentation of variable lease expense in the P&L as either (1) interest expense or (2) a component of income from continuing ops (e.g., lease expense)

ASU 2016-02 BC271 (ASC 842 is silent)

  • When vendor bills are input, the lease payment costs on the payment schedule are recorded against the lease payable clearing account, and any additional lease expense payments are coded as separate line items on the vendor bill
  • A lease can be tagged as having additional variable lease expenses on the Payments subtab in the Key Payment Details section and include an indication of type, but those payments should NOT be included within the Lease Payments Schedule to calculate the lease liability and ROU Asset
  • Additional expected expenses can be added and reported on within the Abstract Data subtab under the Expected Lease Costs sublist

A lessee’s lease cost should be evaluated and classified consistent to other similar types of expenses, whether in cost of sales, SG&A, or other operating expense line item

 

  • Users assign GL accounts for each lease type and transaction category, and chart of account details and reporting hierarchies should be set for those accounts per the guidance

Statement of Cash Flows—Finance Leases (All IFRS and US Financing Leases)

Operating Section—Non-cash expenses should be added back to net income

ASC 842-20-45

  • Direct Method: Not applicable
  • Indirect Method: Amortization Expense GL detailed reporting by Lease 

Operating Section—Interest on the Lease Liability for Finance Leases

ASC 842-20-45

  • Direct Method: Report of payments by lease
  • Indirect Method: No action; interest expense embedded in net income 

Operating Section—Variable lease payments and Short-Term lease payments not included in lease liability

ASC 842-20-45

  • Direct Method: Report to list payments by lease includes other line-level details
  • Indirect Method: Embedded already in net income

Financing Section—Finance Repayments of the principal portion of the lease liability

ASC 842-20-45

  • Direct Method: Report to list payments by lease
  • Indirect Method: Roll-forward report with all lease liability reductions by Finance lease type

Statement of Cash Flows—Operating Leases (US Operating Leases Only)

Operating Section—Payments on Operating Leases

ASC 842-20-45

  • Direct Method: Reporting listing payments by lease, segregated by type
  • Indirect Method: Add-back of Non-cash Lease Expense via report of additions to accumulated Amortization account; for change in lease liabilities, all lease liabilities for operating leases are operating liabilities

 

The following are a listing of the key Disclosure Requirements (ASC 842-20-50) and how NetLease supports each. These requirements below were obtained by Deloitte’s Roadmap to Applying the New Leasing Standard

Requirement

How NetLease Supports

Information about the nature of an entity’s leases:

General description about the nature of an entity’s leases (including subleases)

  • General description report highlights lease breakout by type, classification, subsidiary, currency, ROU & LL balance, etc.

Basis and terms and conditions on which variable lease payments are determined

  • Variable lease terms disclosure report highlights leases tagged as variable rate with lease classification, rate index types, # of leases, and original NPV

Terms and conditions of options to extend or terminate leases

  • Lease Renewal Option Disclosure and Lease Termination Option Disclosure reports provide a listing of leases with options, details of the option, and whether it is likely to exercise

Residual Value Guarantees

  • Residual Value Guarantee report highlights leases with residual value guarantees indicated on the payments subtab with associated expense

Restrictions or covenants imposed by leases

  • Custom reports can be written to pull terms loaded to abstract data subtab

Leases that have not commenced

  • General description report, filtered by status

Significant assumptions and judgments

Whether a contract contains a lease

  • Assumption/Judgment—qualitative response needed

Allocation of consideration in a contract

  • Assumption/Judgment—qualitative response needed

Discount Rate

  •  

Amounts Recognized in the Financial Statements

Finance lease cost

  • Financial Reports

Operating lease cost

  • Financial Reports

Short Term lease cost

  • Financial Reports

Variable lease cost

  • Financial Reports

Sublease income

  • Financial Reports

Net gain or loss from sale-and-leaseback transactions

  • Financial Reports

Cash paid for amounts included in measurement of lease liabilities

  • Cash Flow Reports above

Supplemental noncash information

  • Financial Reports

Other Disclosure Information

Weighted-average remaining lease term

  • Disclosure reports

Weighted-average discount rate

  • Disclosure reports

Maturity analysis of liabilities

  • Disclosure reports

Lease Transactions with related parties

  • Disclosure reports

Practical-expedient disclosure related to Short-Term leases

  • Disclosure reports

Practical-expedient disclosure related to separating lease components

  • Disclosure reports

Electing transition practical expedients:

  • Hindsight practical expedient
  • Practical expedient package
  • Not to restate comparative periods
  • Disclosure reports

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