Best practices for IBM TRIRIGA application upgrade – Lease Accounting prep
In our earlier post, we shared best practices followed by ValuD during IBM TRIRIGA upgrades. In this post, we highlight the best practices for IBM TRIRIGA 10.5.3 upgrades especially related to FASB / IASB leasing standards.
FASB/IFRS preparation points
1. State of the Lease
Lease state (Active, expired, revised etc) was not a major consideration in earlier TRIRIGA releases. However, under FASB / IFRS, the state of the lease has gained much significance and ValuD recommends that you determine a lease state which will not require revision. This will help bypass the snapshot process and also give you an opportunity to understand the working of each of the new lease states. Once the lease accounting verification process is complete, you can move the leases into the Active state using a bulk process, saving up time and cost.
2. New schedule calculation
Unlike earlier TRIRIGA releases where the Net Present Value (NPV) and the Right-of-Use (ROU) of the lease asset was calculated based on the Fiscal Line Items (FLI), 10.5.3 uses Payment Line Items (PLI) as the basis for such calculations. Since these calculations must be done before creating the schedules, ValuD has created a calculation utility which is applied on the PLIs, after the upgrade process, to create the schedules.
3. Handling lease re-classifications
With ASC 842 coming up with newer guidelines on lease classifications as compared to the existing ASC 840, it is necessary to revisit your lease portfolio to re-classify each of your leases as either finance or operating lease. ValuD recommends the following methodology for handling the re-classification process:
- If you hold only one type of lease classification (either finance or operating) in your portfolio: Automate the entire re-classification process during the upgrade.
- If you hold both types of leases (finance and operating) in your portfolio: You can either manually re-classify each lease using the OOTB process or use the ValuD developed and recommended utility to run the re-classification process in bulk. If you opt for the latter, be sure to batch that process to avoid running too many at one time.
4. Adoption process
- Obtain accounting approval prior to the adoption process
As per the new leasing standards, TRIRIGA 10.5.3 offers you the ability to look back on your accounting reports for a two year period. ValuD recommends that you obtain accounting approval prior to starting the adoption process. This is because, once you set the adoption (utilizing the application settings record), all your historical accounting data prior to the look back period will be lost. Validating your leases prior to adoption will ensure that the finance and operating schedules will reflect all the relevant historical accounting data.
- Adopt only a set of leases at a time
With lease re-classification, new schedule calculations (straight line, finance and/or operating schedules) and the like, the new FASB / IFRS leasing standard has made the adoption process more time-consuming. Therefore, ValuD recommends that you adopt only one set of leases at a time taking into consideration the time needed to re-classify leases and re-create all the relevant schedules.
Our third blog in this series will focus on the overall application upgrade process. For more information on IBM TRIRIGA upgrade best practices, watch our webinar.