Oct 21,2016:

Please see our article on ASC 842 Lease Accounting just published at ​http://www.monitordaily.com/article-posts/lessee-side-balance-sheet-reporting/. 
Limited to 1,600 words we have tried to present the essence of the new pronouncement to guide management planning. Our accounting system is close to final completion and testing and addresses Lessor and Lessee side reporting optionally. Hopefully, the next 3 months will be quite enough from a tax compliance standpoint to complete the system. On it goes!

ACCOUNTING SYSTEM WILL ADDRESS LESSOR AND LESSEE REPORTING

I have been developing an accounting capability for the PAMS-DCF analysis system as noted in a few posts back. I am happy to say that it is progressing nicely. The article on ASC 842 is taking a backseat to the system development as developing the accounting capabilities needed for the new lease reporting on both the lessor, and more importantly the lessee side, will directly influence the article. As the lessee is now being bound to the Albatross of Present Value analysis, and is being asked to essentially maintain a "Lessee Portfolio" or more likely two portfolio's of all leases/loans it is obligated to, our accounting system is being designed to be used by both sides of the transaction. Interesting concepts of using a "Portfolio Approach" at least in the initial booking and the ability to compare individual deal bookings to a portfolio approach are complicating the development somewhat but are showing promise for making the job more doable. Bear with me folks, both the accounting capability and the article on ways to approach the challenge will be done shortly. If anyone has any insights into what should be included in a workable system, let me know. The system is being designed to do financial reporting, not billing and collections. That wheel of accounting is already addressed by myriad accounting systems for big and small companies. Our system is designed to provide the balance sheet and P&L reporting of the lease/loan periodic accounting figures required while remaining flexible for easy change in the portfolio composition. We are excited about getting it done.

What I have been able to discern from articles I have read is that a great deal of flexibility is going to be needed on the lessee side to accommodate an ever changing portfolio of leased equipment. Our company, PAMS-DCF, Inc has the newly created (2015) exact system required based on USING EXCEL AS A DATA BASE only, enhanced by powerful front end hard coded programs that are designed to be very flexible. Our system will do the present value analysis on any cash flow, the asset booking entries and a portfolio analysis capable of easy update and  immediate recompilation of the effective yield or present value for the updated composite assets providing an accurate rolling present value balance and amortization analysis through it's portfolio features. Go to PAMSDCF.com for a detailed capability overview. Obviously, there are many more lessees than lessors. Any worthy systems should be very expandable. The job handed down by the FASB is much larger than I believe the FASB realizes. A system such as PAMS-DCF is the only way to manage a large portfolio of leased equipment from the lessee side assuming the company really intends to comply with the new standards, and that may be a larger than life assumption and some time in coming.  Scalability and accuracy into the trillions of  dollars are a must. Look us over before you decide.

It's all about the balance sheet, the balance sheet, the balance sheet!

What can you say? I have concluded that requiring the recording of leases on the books of the lessee is what the new pronouncement is all about. In general, requiring the recording of legal obligations and attendant rights is what has been accomplished. To be sure, it will change the look and feel of many a balance sheet on the lessee side of the equation. That is a big deal! Not so much on the lessor side. It is more than a question of cosmetics when liabilities hit the balance sheet that were previously never shown. On the lessee side again, the operating statement is changed very little if you look at the net Profit impact. PAMS-DCF is very well suited to computing present values and amortization schedules for recorded leases. PAMS will handle complex flows and create permanent records that can be introduced into its portfolio capabilities to create a composite rate and amortization schedule for each reporting period and be easily updated as new lease transactions are added. You would have to set up a portfolio for operating leases and one for finance leases due to the differences in Profit reporting, but that is simple enough to do. We can provide one time or ongoing service and reports in both hard copy and EXCEL file formats without the need to acquire the system or learn it. We would prepare booking entries, monthly amortization and balance sheet balances, monthly amortization expenses, interest expenses,  individually or in a composite portfolio format. Give us a shout and make your life a bit easier. We need the work.

FASB on Feb 25, 2016 and the IASB somewhat earlier, have published and implemented their new accounting standards for  leases. The FASB  standard is designated LEASES(ASC 842). I have had the opportunity just this month (May 2016 ) to review some of the articles available, coming off a very hectic tax season.

To the point, just about every lease that goes beyond a year now has to show itself on the balance sheet as both an asset and offsetting liability. The leases break down into three broad categories as operating leases, finance leases and sales type leases. Leveraged lease are no longer recognized as a separate category, but presumably will squeeze themselves into the finance lease category if any are newly done. There is no advantageous earnings treatment from the lessor reporting side, nor any advantageous balance sheet treatment from the lessee side. If one is done it would have to be on it's economic merits only. After tax analysis is still a viable tool and can be applied to any leveraged tax advantaged transaction not only leases, but including leveraged leases. There is no longer an up-fronting of income and hence no great EPS impact can be expected for lessors.

It is all too new for me to start making any generalizations other than to say all leases will be outed on the balance sheets of lessees and will carry the force of contractual debt in ratio and income measurements. Present value analysis can be done for the simpler payment streams using any tool such as EXCEL or a hand held HP Financial calculator. For more complex flows and for a permanent record or portfolio computations, a system such as PAMS-DCF will be required above and apart from the rate analysis aspects of such a tool. Over-all, I believe Present Value tools will be in more demand now than ever before, in spite of the loss of the need for accounting use of extended yield analysis methods. It should prove to be a net win for products such as PAMS-DCF. More will come as the accounting package is completed and some attempts are made to implement portfolio booking methods for leases on the lessee side. It is a new world, but hey, look what's happening to the political world.

February 8, 2016 ...The FASB on Leasing and Lease Reporting

I have yet to see a definitive publication on lease reporting coming from the FASB (Financial Accounting Standards Board) explaining the new but not yet implemented accounting rules. That is, a written dissertation on this is how you do it (also serving as a codification) may not yet be available. I think it is safe to say that leveraged leasing is dead for the foreseeable future. I have read that it was pretty much dead for the past few years anyway. If there was any question about it's health, the general opting to treat a leveraged lease as a finance lease essentially kills all hope of it's use in the future. As a straight financing transaction on paper, the EPS impact would be negative or weak at best, the real economics of the transaction not withstanding. The general trend of corporations not paying any taxes via other shelters and techniques probably had as much to do with the demise of the leveraged lease as anything else. When you can just off-shore the income and avoid all taxes, at least for the immediate future, why bother with tax shelters. Jesse James did not need any tax shelters. Someone should do a new book on modern tax sheltering techniques for Internationals. Maybe Bernie Madof could write something while he is doing his time? By the by, FASB, the technique of putting off implementation amounts to avoidance behavior, which is not the mark of good leadership.

The economics of tax sheltered leases of equipment still requires measurement via some sinking fund method enhanced yield approach to measure an after tax rate, if rate is to be used as one of the measuring tools. Systems that are able to do that will be harder to find. PAMDCF still provides sinking fund analysis of transactions including one sound method, the Standard Sinking Fund Method to do rate analysis when after tax analysis is sought, and equivalent pre-tax rates are sought. Using EXCEL as it's data base provides the flexibility to introduce any computed tax benefits to the flows and using the SSFM to establish a sinking fund provides a mathematically and logically sound approach to handing the sign change issues that create multiple yield problems. As an example, the SSFM model could be used to determine how much investors would have to invest up front to assure a business would succeed where it's projections cause sign changes over the projected period. Nothing to do with leasing, but the same concept as a leveraged lease. As long as there remains gaping holes in the tax code that permit Multi-nationals to avoid taxes entirely, who needs any tax shelters? Maybe some of theses pillars of independence running for election can fix things? Right!

Monday February 8, 2016-Accounting System coming soon!

We have very neatly formatted amortization schedules going to excel files directly. We are cleaning up rounding differences and should be ready to publish as part of the standard package shortly Next will be carrying the reports directly to an accounting sheet for cumulative accounting reporting of earned income , remaining unearned income and remaining principal balances. This will effectively permit both balance sheet reporting and income reporting of the key eliminates of investment receivables. We have also cleaned up readability of reports by eliminating sometimes confusing negative signs preceding some columns .