IFRS 16 Real Property Leasing with SAP Real Estate Management
The Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) recently announced the release of new accounting standards that define how organizations must account for leases. Essentially, these accounting standards stipulate most leases must be reported on each company’s balance sheet, increasing the risk of regulatory noncompliance and inaccurate statutory reporting.
SAP Real Estate Management is used to optimize the portfolio of global assets and supports the regulatory compliance of these new accounting rules. This solution provides a single point of entry for collection, validation of lease contract data, performs valuation calculations and generates the financial postings derived from these calculations.
The Compelling Event
- New standard on leasing released by FASB and IASB
- Need to capitalize many corporate operating leases and record these lease obligations on the balance sheet as assets and liabilities
- Boosts the amount of debt on balance sheets by tens of billions of dollars
- Beside affected accounting, new standards will transform corporate business processes in many areas, including finance, procurement, tax, treasury, legal, operations, corporate real estate and HR
Which Customers are affected?
- Every IFRS/ US-GAAP reporting company renting real estate or leasing equipment will be impacted by the new standards
- Large companies with big property portfolio are affected most and need to react quickly to prepare
The new leasing standards represent more than accounting changes. They force business process change and with any business or process change, there’s going to be some level of impact on systems and technology.
SAP Real Estate Management enables close collaboration between the lease administrator, lease accountant and fixed asset accountant. They access the same lease record, with all calculations being based on the terms and conditions of the abstracted lease. The lease transaction in SAP Real Estate Management provides separate authorizations to ensure a clear separation of duties. The following illustration highlights the coordination between the different departments provided within the solution.
In addition to capturing contract terms and conditions, SAP Real Estate Management is specifically designed to support real estate leasing processes such as managing critical dates, exercising renewal options, early terminations, rent escalations and sales based rent. The highly flexible and extendable forms collect industry- or business-specific- attributes and enables users to stay ahead of the game. Periodic posting runs automatically generate all lease payments based on the terms of the current lease agreement with real time integration into SAP Financials.
The solution also provides lease accountants the ability to evaluate the financial impact of each lease and ultimately generates all valuation postings required by the new leasing standards. It even manages the postings for multiple lease accounting standards simultaneously, regardless if the general ledger account or parallel ledger methodology is utilized. This solution is part of SAP Finance and is completely integrated, helping avoid the kind of costly disruptions that can derail critical business processes, operations and costly noncompliance events.
Why SAP Real Estate Management?
SAP Real Estate Management is specifically built to integrate with SAP Financials. No other real estate software provider can take abstracted lease data, generate payments to landlords and perform all valuation calculations and postings back into SAP without cumbersome interfaces. SAP’s real estate solution performs all these activities in real time and without complicated interfaces.
If a company uses spreadsheets or an alternative solution, information silos will naturally exist between lease administrators and accountants. Data becomes inconsistent over time, resulting in inaccurate valuations and misstated financials. SAP Real Estate Management breaks down silos between these groups, ensuring transparent, consistent and accurate results.
SAP Real Estate Management will help improve your decision making through greater visibility into portfolio wide lease data. All in all, the solution provides you with improved understanding all the associated legal, financial, and business implications of your leasing strategy in a way not available with other solutions.
What to Do Now?
Even though the new leasing standards are not effective until December 2018 for US GAAP and January 2019 for IFRS, companies can choose to be early adopters and begin reporting January 2017. Whether you choose to be an early adopter or comply by the deadlines, there are certain things you can do today to prepare.
- Current SAP Real Estate Management users should implement the new leasing enhancements as soon as they are release to begin evaluating the impacts to your financial statements. Even if you do not intend to be an early adopter, the loading of the leases and analyzing the results will pay big dividends in the future.
- If you use SAP Financials, you can quickly implement SAP Real Estate Management for real property leasing to give you a fully integrated leasing solution. SAP currently has and will roll out new accelerators designed to help customers quickly implement SAP’s leasing solution.
Once SAP Real Estate Management has been implemented, begin abstracting existing lease agreements and ensure the abstracted lease terms and conditions are correct. For most organizations, this will be the most time consuming portion of the lease compliance project. All calculations are dependent on accurate lease information. Any inaccuracy in probable end dates and payment amounts for example, will have an impact on the posted valuations.
Watch this site for more information and examples of how SAP Real Estate Management will help leasing and accounting departments run simple.
Thanks for the post. Have been looking for some direction on this, after the release of new standard in the beginning of 2016.
Since new standard mandates to capitalize most of the long term leases, do you see the possibility of utilization of 'Asset Accounting' to achieve the new accounting requirements?
The planned solution uses SAP Real Estate Management to calculate and generate all of required postings. One of the required postings is the creation and depreciation of a right of use asset. During capitalization of the right of use asset, the application will either create this asset in SAP Fixed Asset Accounting and post the APC and planned depreciation entries or if the asset already exists, the asset accountant can assign the existing asset during the valuation process. In both cases, there is tight integration between real estate and fixed asset accounting. Additionally, the user can drill directly from the valuation entry within real estate to the fixed asset and view all values and planned depreciation entries.
Thank you for your question and please do not hesistate to contact me directly with further questions at firstname.lastname@example.org
Thanks for this post Tom. Does the integration of an RE-FX lease contract with Fixed Assets and the outline for a new depreciation key (Note 2297363) displace the use of the capital lease functionality in FI-AA built on the leasing type for creation of the 'Opening Posting' entry?
Also is there an integration point on the contract with purchasing for PO-based invoicing or is the option for making lease payments direct to FI invoices only?
This solution creates the fixed asset as well generates the asset APC based on the terms of the lease agreement. In my opinion, this functionality is more complete that the capital lease functionality in FI-AA because real estate manages all terms of the lease agreement and then calculates the valuation and performs the postings. This is much cleaner and has better documentation.
There is not integration with purchasing. The real estate contract generates the lease payments to the landlord based again on the terms of the lease agreement. There is seamless integration between real estate and accounts payable.
How do I register for this event?
Please see th following link for information on the new partner enablement webnar scheduled for July 22 at 15:00 - 18:30 CET:
Participant passcode: 748003
International Toll: 719-325-2219
When the new standard becomes effective in 2019, lessees and lessors are required to recognize and measure leases at the beginning of the earliest period presented. In our case, that is Q1 2017. Would that require us to be early adopters? Or with the SAP Real Estate Management enhancement for leases this can be done retroactively?
The solution provides the ability to control the valuation posting dates so you have the ability to generate the postings retroactively. Additionally, watch OSS for new notes to support the comparative statement periods.
Thank you for this Post. Can you please let us know a time frame we can expect an enhancement from SAP on RE-FX and FI-LA (Lease accounting) modules to comply with IFRS16 and ASC 842?
Does anyone have examples of IFRS16 implementation ?
We just want to know if someone already use it.
Thanks in advance!
I am new to the forum.
Alike Anton I am also looking for some documentation or examples on IFRS16 implementation.
I would like to know about the impacts, solution design for the same.
Is there any specificity with regard to Swiss GAAP.
Appreciate a quick help on this topic.
Was there a recording for the webinar that was held in June 2016?
I am trying to set up a demo system but I am stuck at the asset accounting integration part. SAP documentation says the GL for Asset acquisition are to be picked up from asset accounting account determination but the configuration for flow type assignment to account symbols for account type A – does not support the functionality for asset reconciliation accounts like it does for D* and K*. Can you please help me out here. is there any configuration document you could share with me?
Did you manage to figure out how the account determination works? I've assigned the transaction types to flow types as described in the documentations but I'm still getting errors on the valuation postings.
what Kind of errors do you get?
When posting the asset acquisition in RECEEP the error was ” No unique header information transferred into Accounting ” . After reading several notes it seems that the account determination has to be changed. Now we are implementing note after note to enable this new account determination.
Have you successfully done the IFRS 16 changes in your system?
Have you solved this issue - When posting the asset acquisition in RECEEP the error was ” No unique header information transferred into Accounting ” , we face the same issue, and looking for the guide to success.
Thanks a lot!
As I understood from the SAP Financials 2017 held in Las Vegas, SAP Real Estate Management can only support for real estate for non movables but nor for movables leases. so SAP suggesting to use SAP Lease Administration by Nakisa.
Is this correct approach to proceed or SAP RE-FX will standalone will support movables leases also?
My Company is looking for a solution for new lease accounting standard. Please guide me.
do we have to implement real estate management? we have fixed assets accounting in company.
Real Estate Management(RE-FX) is a must, Already exisiting Assets can be mapped to newly created contracts!
SAP Note 225555 is a good start! RE050 Course on LH would be a deep dive!
Do anybody tried to set up HGB for German company code is looking for the fields in the valuation rule that needs to be set up.