Quantitative Analysis Report - Product Advisory

June 2021

Business Summary

The information in this document represents LeaseAccelerator’s understanding of the requirements for the Quantitative Analysis Report. There may be line items where there are different opinions and guidance as to what should or should not be included.  Companies should review the below in conjunction with their technical accounting advisors and make any manual adjustments to the system generated report as needed.

The ASC 842 and IFRS 16 Accounting Standards have prescribed new quantitative disclosures which Lessees must present in their quarterly and annual financial statements. These disclosures include a quantitative analysis report in a table format. Exhibit A shows an example of the summary disclosure.

The Details Tabs (Yr1/Yr2) of the report show the following information for the periods presented in the financial statements:

Lease Cost (Expense) is comprised of the following groups:

Note: Operating, Short-term/Low value and Variable Expenses are all recorded to Lease Rental Expense within LeaseAccelerator.

• Finance lease – separating the ROU asset amortization expense and the interest expense.

• Operating lease – the single lease expense comprised of the sum of the imputed interest (as if the lease were accounted for as a finance lease) and the asset amortization expense, which combined, constitutes the straight-lined expense over the term.

• Short term lease expense – amounts expensed for short term leases with terms less than or equal to 12 months.

• Low value lease expense (IFRS16 only) – amounts expensed for leases classified as low value based on the policy election.

• Variable lease expense – lease expenses which are not capitalized.

  • This includes differences between the adjusted payment and the original payment related to non-remeasuring payment adjustments, as well as items entered as Paid Related Expenses, such as CAMS, Real Estate, Property Insurance, and Other Expenses, except when they are categorized as non-lease components.

• Sublease income – the income on a gross basis, separate from the related finance or operating lease expense.

  • This report does not currently support Lessor accounting; therefore, customers will need to incorporate this information from their Lessor accounting records for disclosure purposes.

Net Gain/Loss from sale and leaseback transactions

This report does not currently support the calculation of net gain/loss from sale and leaseback transactions; therefore, customers will need to incorporate this information from other sources for disclosure purposes.

Cash paid for amounts included in the measurement of the lease liability

• Operating cash flow from finance leases – the interest portion of payments on finance leases.

• Operating cash flow from operating leases – the base lease payment for operating leases.

• Financing cash flow from finance leases – the principal portion of payments on finance leases.

Cash paid for amounts not included in the measurement of the lease liability

Operating cash flows from variable payments – the portion of payments on both operating and finance leases related to the difference in the original (base) lease payments and non-remeasuring payment adjustments. Note that variable payments on finance leases will be included here, though they are debited to interest expense. This also includes variable payments for expenses such as CAMS, Real Estate, Property Insurance, and Other Expenses.

ROU assets obtained through new finance leases:

The initial capitalized amount for each finance lease booked during the period. Reflects the initial takedown entry at the beginning of a new lease initiated during the reporting period only. For schedules with AFUD, entries are included based on the earliest of AFUD and Lease Start Date. It does not include the ROU asset takedown entry created at transition, nor does it include remeasurement activities including renewals, modifications, etc. Remeasurement activities are included in the Detail tabs noted below as “Net ROU Remeasurement”. See Additional Notes.

ROU assets obtained through new operating leases:

The initial capitalized amount for each capitalized-operating lease booked during the period. Reflects the initial takedown entry at the beginning of a new lease initiated during the reporting period only. For schedules with AFUD, entries are included based on the earliest of AFUD and Lease Start Date. It does not include the ROU asset takedown entry created at transition, nor does it include remeasurement activities such as renewals, modifications, etc. Remeasurement activities are included in the Detail tabs noted below as “Net ROU Remeasurement”. See Additional Notes.

Weighted average remaining lease term (uses total remaining liability for weighting):

• Finance leases

• Operating leases (aka Capitalized-Operating)

Weighted average discount rate (uses total remaining balance of lease payments for weighting):

• Finance leases

• Operating leases (aka Capitalized-Operating)

Note: This report does not include lease liabilities, assets, expenses, or future payments for Asset Retirement Obligations (ARO) associated with the Return to Original Condition/Refurbishment categories. It does include these entries for AROs associated with the Cost to Dismantle category to the extent the accounting entries roll up to existing lease liability, asset, or expense accounts. A separate ARO Disclosure Report to address the Return to Original Condition/Refurbishment categories is available under the Accounting tile. In other words, if the ARO component is combined with the ROU asset, lease liability or expense, then it will be included in this report. If it is a standalone ARO component, then it will be excluded.

Report Generation

The Quantitative Analysis Report is a schedule-level report and is typically generated at the end of each quarter. As a schedule-level report, allocation-level parameters such as Product Category and Cost Center are used solely to determine which schedules will be included in the result set. When using these allocation-level parameters, the results will contain expenses, payments, liabilities, etc. for the entire schedule – not just the portion attributed to the selected cost center.

The report is located on the Accounting tile in the Reporting workspace and is available to Power Users by default. The report submission screen is shown below along with a description of each parameter. Parameters representing assigned attributes (Lessee, Cost Center, GL Segment 2, etc.) will include schedules assigned the selected value as of the As At date.

Report Parameter Definitions

This report can be scheduled to generate in the future. This can be a single occurrence or at specified recurring intervals. More information regarding report scheduling can be found in the Ask Alex menu in the Reporting section.

Report Output

The table below summarizes the key items included on the detail tabs for each schedule. The summary tab aggregates the detail tabs (“Yr1”/”Yr2”). Where applicable, the Description field includes a list of accounts that are included in the output of the data item. Reports listed under the Validation & Reconciliation section can be utilized to validate the output. The same reporting currency option and account descriptions should be used for validation. References to the Accounting Roll Forward-FX report assume the ‘Opening Balance’ and ‘Closing Balance’ values will be filtered out for validation of activities.

THE FOLLOWING REPORTS SHOULD BE GENERATED WITH THE SAME AS AT DATE AS THE QUANTITATIVE ANALYSIS REPORT FOR VALIDATION PURPOSES:

• LEDGER EXPORT

• FUNCTIONAL LEDGER EXPORT

• ACCOUNTING ROLL FORWARD-FX

• MATURITY ANALYSIS REPORT

These reports should be generated using the default As At date and compared to the same month(s) included in the Quantitative Analysis output:

• Portfolio Trial Balance

• Schedule Account Activity Trend

Report Output Definitions – Details Tab (Yr1/Yr2)

The table below includes a description of the columns included on the Details tab along with methods to validate/reconcile the amounts. Note: Capitalized-Operating accounts mentioned below are limited to ASC 842 ledgers only. Low Value references are limited to IFRS 16 ledgers only.

The following outlines the weighting methodology utilized in calculating the weighted-average remaining lease term and weighted-average discount rate included on the summary tab of the report:

Additional Notes

• Using the As At date(s) and Reporting Year/Reporting Period parameters as recommended is crucial to obtaining the correct output. 

• The report reflects the accounting entries recorded in the Ledger Export Report. To properly validate data against the Ledger Export, the Functional Ledger Export or the Accounting Roll Forward-FX report, the targeted report must be run with the SAME AS AT DATE and same “Including Adjusting Entries” selection as the Quantitative Analysis Report.

• To enhance reconciliation efforts between accounting reports, the classification of ‘Operating’ has been replaced in this report with either Short Term or Low Value. Definitions follow:

  • Short Term is defined as a lease with a duration of <=12 months at inception. For IFRS 16, the Short Term classification is also extended to leases with <=12 months remaining at the Transition Effective Date assuming selection of the practical expedient.

    • Short Term classification is also used for schedules past the RCHP end date which have not had end-of-term actions recorded (aka Evergreen).

    • Short Term lease classification is used in this report to indicate that the associated accounting treatment is for an Operating (off-balance sheet) lease regardless of the lease term. If this is not the desired classification, manual reclassification to either Finance or Capitalized-Operating classification will be required.

• Low Value is defined as a lease where Unit Price (Original Equipment Cost) is < = $5,000 US and does not meet the definition of Short Term. Classification is applicable only when the Low Value policy election is in effect, and valid under IFRS16 only.

  • Under IFRS16, for schedules that qualify as both Short Term and Low Value, the Short Term classification will take precedence.

  • Low Value leases will not switch to Short Term classification upon entering evergreen status.

• Schedules in evergreen status containing a mixture of lease component assets and non-lease component assets may reflect Operating classification as opposed to Short Term (or Low Value – see above).

• Schedules classified as Capitalized-Operating and Finance/Capital will NOT change to Short Term classification when the schedule is within the final 12 months of its term.

• Leases with terminations within the reporting period should be included for all expense and cash flow activities for the respective amounts from the beginning of the reporting period to the termination date.

  • Remaining liability balance, remaining term, and remaining payments should be zero assuming that all activity was recorded in the system appropriately. These schedules should have a zero contribution to the overall weighted average remaining term and weighted average discount rate.

    • Due to existing small liability balances resulting with penny rounding differences, schedules carrying such balances may now be included on the report past the termination/disposal date(s). With no remaining term, these leases will have no impact on computed weighted averages. This situation will be addressed in a future release.

• Schedules that have two different lease classifications within the reporting period will include two different rows representing the activity that occurs within the respective classification during the reporting time frame. Due to the dual classification output, please take special care when using “lookup” formulas in performing validation comparisons. Examples:

  • Schedule begins the reporting period as Capitalized-Operating and then goes into an evergreen status during the reporting period.

    • Result includes two rows. One row will reflect Capitalized-Operating classification and associated values, and the second row will reflect Short Term lease classification with expenses listed under short term expense, zero remaining liability, zero remaining term and total remaining payments representing system-generated contractual evergreen activity.

  • Schedule begins the reporting period as Finance and is manually reclassified to Capitalized-Operating during the reporting period.

    • Result includes a minimum of two rows. One row will reflect Finance classification and include all values incurred during the time the lease was classified as Finance. The second row will reflect Capitalized-Operating and include all values incurred during the time the lease was classified as Capitalized-Operating. If the reclassification period included the transition date, it is possible the schedule would also have a third row reflecting Short Term classification. This row would include entries created with transition associated with the ‘Step Payment Expense Recognition’ JEShortDesc (on the Ledger Export).

• Based on the contractually required advanced notice, it is possible for a lease to reflect evergreen status on the report with a RCHP end date after the report end date. The report reflects system-generated contractual evergreen activity only. In these scenarios, the original lease classification will show along with the status of evergreen. Activity/balances will be reflected in the columns related to the original lease classification.

• When validating data against the Ledger Export Report for modified schedules, both the original and “M-xxx” schedule(s) should be examined. Some entries may appear to have hanging balances for one schedule whereas the offsetting entry is posted to the other schedule. As such, report values for modified deals should be reviewed in combination.

• Only schedules that have non-zero values for at least one column are included in the report output. In the event a schedule has no liability, no expenses, no payments, no remaining term or remaining payments for a specific reporting period, it would be excluded from the report.

• Expenses and payments associated with early termination fees are currently not included in the report. This will be addressed in the future.

• For reports run in functional or reporting currency, columns representing expense, payments and ROU-related activities will be converted/translated into the specified currency type without additional remeasurement entries. However, since Remaining Liability represents monetary balance sheet balances as of a given date, this column does include remeasurement and/or translation entries on top of the standard conversion.

  • Please refer to the LA User Guide - FX Reporting. LeaseAccelerator will use rates loaded as of the system date the report is generated.

• As is the case with all the values presented in the report, the Ledger Export (or Functional Ledger Export) is the driver of the output. Therefore, if an unexpected result appears please confirm or validate the result against the appropriate Ledger Export. This is generally most noticeable in the Net ROU Remeasurement column. An unanticipated positive (or negative) value is a signal that the accounting entries have been adjusted. While the adjusting entries may net to zero in transactional currency, the FX dates associated with the entries may be different which results in values appearing in the Net ROU Remeasurement column.

• Takedown entries associated with a modification are generally included in the Net ROU Remeasurement section. The report recognizes a modification based on the schedule being ‘related to’ the original schedule (see Related Deals tile in Deal Summary). If the schedule is not related to another schedule, or if the relationship is broken via a rolled back modification, the takedown entry associated with the modification will appear in the New ROU for Finance/CapOp.

• While ensuring all adjusting entries related to the net change in ROU were accounted for in the Net ROU Remeasurement column, current system design does not readily distinguish backdated adjusting entries related to the initial takedown for transition from subsequent adjusting entries related to the transition takedown. Consequently, the report considers the conservative approach and includes all the adjusting entries. The result is that schedules with lease start dates prior to transition date that are entered into the system after transition (with month end close in place) will include the asset and accumulated depreciation backdated adjusting entries created by transition reported in the Net ROU Remeasurement column. Following are some examples (months closed through November 2019 using standard Gregorian fiscal calendar so that the first ledger date to record takedown entries is 12/01/2019):

  • HVTC10 – Lease Start Date is prior to 01/01/2019 transition date; backdated entries related to asset created by transition is appearing under Net ROU Remeasurement.

  • HVTC13 – Lease Start Date is during the reporting period with schedule subsequently rolled back (also during the reporting period).

  • HVTC1 – Lease Start Date is equal to 01/01/2019 transition date; backdated entries related to asset’s initial takedown NOT created by transition appears under the ROU for CapOp Lease column.

• With the enhanced redesign of the report, it is possible users may experience a slight uptick in the report’s runtime. Users can click the ‘Email’ option upon generating the report so that the UI is freed up for additional viewing while the report continues to run in the background. If the exported file is too large for email distribution after completion, the report can be downloaded from the System Operations Console.

REMINDER: Rows of data with Short Term, Low Value and Operating classifications will NOT be included in weighted average calculations.

Exhibit A

Below is an example of the output of the Summary tab of the Quantitative Analysis Report: