Maintaining Your IBRs - Product Advisory

February 2019

Introduction

Maintaining the Lessee Rate Table within LeaseAccelerator is a critical function to ensure that a customer’s portfolio is properly accounted for.

Customers are encouraged to review the educational materials in Ask Alex and the Success Center to better understand the general procedures to input data for this important configuration setting.

Customer Error

Over the past few weeks, LeaseAccelerator has noted several customer reports where an unexpected ROU Asset and Liability balance resulted after either transition, modification, or other remeasurement action. In each of these situations, the accounting calculations rely upon the default Lessee Rate information and interpolation of the rate was required. Analysis of the issues has found that the system is working as designed and generating the correct results using the available data. The unexpected results are caused by incomplete Lessee Rate default data where either:

1. No Lessee Rates are configured. During transition, if there are no Lessee Rates configured in LeaseAccelerator for the Effective Date that match the required schedule (including an inability to do any interpolation) then the system will revert to the schedule’s original IBR. Customers should note that this may be an accounting error if the IBR at the commencement date (as entered in LeaseAccelerator) is different than the IBR at the Effective Date for transition.

2. Configured Lessee Rates contain gaps or inconsistent combinations of the default data. The inconsistencies result in unexpected rates used within the accounting calculations which manifests to the user as incorrect accounting output. These gaps may be exacerbated by the complexity of a customer’s organization and the availability of different IBRs for different lessees within an overall organization.

Resolution

To resolve these issues, customers are encouraged to review their Lessee Rate table⁽¹⁾ to ensure that rate data is accurately maintained on an ongoing basis. The Lessee Rate Report, located under Administrative Reporting, should be used to review the Lessee Rates to ensure:

• No gaps exist for rate combinations for each Lessee, Country, and Term for each period.

• If a rate is no longer applicable for a specific combination that it is superseded with an appropriate rate or “capped off.”

⁽¹⁾The Lessee Rate Export is being modified to ensure that all data is visible to the users. This modification will become the Lessee Rate Report and will be deployed, once completed, in the next available patch. The Lessee Rate Report will be found under Administrative Reporting. The report will include parameters to select the rates by lessee which are configured as of a particular date. This includes those that were effective as of a prior date and are still active as of the date selected. The Lessee Rate Export will be decommissioned in a subsequent release. Customers should use the Lessee Rate Report once deployed.

Additionally, on a going forward basis, the following best practices may be used to reduce the risk of inaccurate or inconsistent data:

1. If a standard set of Lessee Rates (IBR, Debt Rate, and Equity rates) applies to all lessees for a standard set of countries and terms, create a standard template of these rates to be input for each update. This will assist in verifying that a rate is input for each set of elements even if the current rate continues unchanged. This template should include (at a minimum) these columns:

2. If there are multitude of combinations of Lessee, Country, and Terms along with overlapping effective dates AND rate updates are requested through LeaseAccelerator Support, request that all existing rates be “capped off” at the effective date. Requests to Support for rate updates should include the following columns of data:

Example

Acme, Inc. has the following IBR’s entered for a specific lessee/country combination with the associated effective dates:

At transition, Acme has a deal with an 18 months remaining term. The system will calculate Present Value of the remaining payment using the interpolated rate since there is no rate for a term of 18 months effective at 1/1/19. LeaseAccelerator still has an active rate for the 12 months term because there was no new value input. Therefore the system will interpolate the rate between 5% and 8%.

Required Actions

If the 12-month rate was to continue active at 1/1/19 – customer may either a) input the rate using a standard template with a 5% rate effective on 1/1/19 therefore explicitly continuing the rate or b) do nothing but potentially cause unnecessary confusion 

OR

If the intent was to eliminate the 12-month rate as it is no longer valid as of 1/1/19; submit the new effective rates through the application or a request to LeaseAccelerator Support (for a large volume of updates) AND request that the 12-month rate be “capped off” for future use.