Business / Technical Brief

Migration to Lease Accounting

Lease Accounting Migration Tools and Best Practices

April 2021, Version 2.1

Copyright © 2021, Oracle and/or its affiliates
Public

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Purpose statement
This document provides an overview of Lease Accounting migration tools and best
practices.

Disclaimer
This document in any form, software, or printed matter, contains proprietary
information that is the exclusive property of Oracle. Your access to and use of this
confidential material is subject to the terms and conditions of your Oracle software
license and service agreement, which has been executed and with which you agree to
comply. This document and information contained herein may not be disclosed,
copied, reproduced, or distributed to anyone outside Oracle without the prior written
consent of Oracle. This document is not part of your license agreement, nor can it be
incorporated into any contractual agreement with Oracle or its subsidiaries or
affiliates.

This document is for informational purposes only and is intended solely to assist you in
planning for the implementation and upgrade of the product features described. It is
not a commitment to deliver any material, code, or functionality and should not be
relied upon in making purchasing decisions. The development, release, and timing of
any features or functionality described in this document remains at the sole discretion
of Oracle. Due to the nature of the product architecture, it may not be possible to
safely include all features described in this document without risking significant
destabilization of the code.

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Table of contents

Purpose statement 2
Disclaimer 2
Introduction 4
Compile Lease Data 4
Apply Accounting Policies 5
Cutover Details 5
Execution 6
Filling Import Template 6
Loading Import Data into Fusion Lease Accounting Interface Tables 7
Transfer Import Data from Interface Tables to Lease Accounting Tables 7
Validate, Complete and Activate Leases 8
Key Calculations 9
Reconciliation and Exceptions 9
Migration Review and Reconciliation 9
Lease Accounting Dashboard 9

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Introduction
Migrating data is an essential aspect of software implementation and much more than moving data from point A to point B.
Therefore, it’s imperative to develop a thorough plan that encompasses all steps from data compilation to validation and
reconciliation. This document intends to provide key information that is specific to Lease Accounting migration tools and best
practices. Although the primary focus of the document is data conversion, the document content also applies to the mass import
of new leases.

Compile Lease Data

To initiate the migration process, you need to gather the lease information to be converted to Lease Accounting. The complexity
of the task depends on the number of sources and the quality of the data. Extracting the information from spreadsheets or filing
cabinets will not be the same as extracting the data from a single repository.

Before any data is transferred from one system to another, you must do a thorough data quality check to ensure a high-level
quality once the new data base takes shape. It's crucial to assess legacy data quality and build firewalls to filter, cleanse, and
protect good data while eliminating de-duplication.

In any case, the guiding principle is that the information you compile be consistent with the underlying lease documents, and
the key differences between these and legacy systems be understood and remedied during the conversion process.

From a Lease Accounting perspective, the key information is the following:

• Lessor
• Lease Start Date and End Date
• Assets
• For property leases:
o Property address.
• For equipment leases:
o Equipment model and the number of model units. It must be ensured the model is already added to your
Inventory Item master list.
o Serial Numbers. They may be required based on your policies.
o Location. It is where the equipment will reside. Locations must have already added to your location master list.
• Payments
o Payee or supplier.
o Payee or supplier site where the payment is sent.
o Asset, if the payment is for a specific property or equipment on the lease.
o Payment schedule is the set of payment amounts and due dates specified in the lease document.
o Purpose of the payment, for example, whether the payment is for rent, for cleaning, or other purposes.
o Critically, for conversion, you need to know what payments would have already been made by your expected
migration date.

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 o Right-of-Use balance amount for conversion to Lease Accounting. If you have Multi GAAP reporting
requirements, you can also capture a balance for a secondary regime.
• Options
o In addition to the payment information required above, if the option is exercised, key information includes the
option type like renewal, termination, and such.
o Whether the option is considered likely to be exercised and has already been accounted for in your books.
o If the option has already been accounted for, you must know the remaining right-of-use balance to be
amortized for each option by the expected migration date.

Apply Accounting Policies

As a lessee, you may or may not have already implemented accounting policies in your organization. In either case, these
policies must be deployed in Lease Accounting in the form of setups or lease parameters. While some of these parameters are
selected directly on a lease, many others must be modeled into System Options and Payment Templates.

Selected directly on a lease,

• Lease Classification, in Lease Accounting, the lease classification impacts how schedules are generated and accounted;
therefore, confirming the correct lease classification is essential when you migrate your leases to the application.
• For your leases that are low value or short term or both, you can use the lease classification of Exempt Leases in the
application as they do not have to be reported in your balance sheet.
• Discount Rates, you select a discount rate index that represents the cost of funds of your organization and has already
been created in the Lease Accounting setup. The discount rate index is needed to calculate liability and right-of-use
balances as well as periodic interest and amortization expenses.

Configured in a payment template that must be selected for every payment and option in a lease,

• Liability Checkbox, when checked, the payment or option is used to calculate a liability balance that generates interest
expense.
• Right-of Use Checkbox, when checked, the right-of-use balance you enter is used to generates an amortization expense.
• Additional tax parameters, optionally you may select tax parameters to be interfaced to the tax engine
• Accounting Distributions
It is important to note here that in addition to the above, a payment template is also used to default payment-specific
information such as payee, pay site, payment terms, payment frequency, and payment purpose and type. While all these
parameters will have defaulted from the payment template onto the lease, you will have the flexibility to override these values
for each payment on a lease.

Cutover Details
The cutover date you select for migration is fundamental to determine what parts of the lease data you need to convert, and is an
input in the calculation of Right of Use and Liability conversion balances. It also determines what payments and accruals should
already have been processed in your legacy systems and which ones are expected to be processed in Lease Accounting after leases
are converted.

In Lease Accounting, for migrated leases, the amortization start date field represents the migration or cutover effective date.

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The amortization start date, which is a field in the lease header and defaults to the lease start date in new leases, determines the
following:

• Right-of-Use Balance: the amortization start date represents the effective date of the right-of-use balances you enter for
payments in a migrated lease.
• Liability Balance: in addition to representing the liability balance effective date, the amortization start date determines
what payments are included in its calculation as only payments on or after the amortization start date are included.
• Payments: any payments in the lease before the amortization start date are deemed paid in legacy systems and are not
included in liability amortizations or interface to accounts payable.
• Accruals: interest and amortization expenses are accrued only after the amortization start date. The amount to be
accrued in the remaining life of a lease is a function of the payments due on or after the amortization start date and the
migrated right-of-use balance.

Execution
Once your lease data is staged, the import process is straightforward and consists of the following steps:

Filling Import Template

The first step in the import process for migrated leases and new leases is to fill the lease import spreadsheet. The Lease
Accounting provided import spreadsheet consists of eight tabs, one for instructions and seven representing tables in the
application.

In the tabs representing tables, each column header contains a field description that includes the data type required and the
number of characters allowed. A single asterisk next to the field name indicates the field is mandatory.

• Leases - For migrated leases, there is a column where you must specify whether the lease is migrated. Here you can
enter the lease amortization start date and select the lease's target status (see Figure 1). For lease numbering, you must
decide whether you will carry on the same lease numbers from your legacy system or you will allow lease accounting to
automatically generate lease numbers by enabling auto numbering in the business unit's system options. In any case,
you can use the Source Reference fields available in this tab to enter any legacy reference you may need.
Figure 1

• Assets - All assets in the lease must be entered. As in leases, you must decide whether you will keep the same lease
numbers from your legacy system or allow lease accounting to automatically generate asset numbers by enabling asset
auto numbering in the business unit's system options. You can also use the Source Reference fields available in this tab
to enter legacy system references.
• Serial Numbers - This is an optional tab applicable to equipment leases only.
• Payments - Payments for the lease are entered. For migrated leases, here is where you may optionally enter right-of-use
migration balances for each payment (See Figure 2), which you will need to do if you have previously impaired the
right-of-use balance or adjusted it. If you don't enter a right-of-use balance, the application will calculate it based on
the remaining payments and the discount rate index you select for the lease.

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 If you use only ASC 842 or use both IFRS 16 and ASC 842 as accounting standards, Oracle recommends you provide
amounts for both the columns Right-of-Use Balance for Operating Lease and Right-of-Use Balance for Finance Lease. If
you use IFRS 16 only, Oracle recommends you provide an amount in the Right of Use Balance for the Finance Lease
column only.
Figure 2

• Payment Lines – They represent the payment schedule associated with each payment. From the payment lines, you
enter only the payments due on or after the amortization start date are paid through Lease Accounting.
• Options - Options for the lease are entered. For migrated leases, you can enter the right-of-use migration balances for
each option if the option is being deemed likely to be exercised and accounted.
• Option Lines - They represent the payment schedule created for the option if the option is exercised.
After the lease data is entered, you must run the macro "Generate CSV File," which creates the selected file in the next step and
is imported into FLA interface tables.

Loading Import Data into Fusion Lease Accounting Interface Tables

From the Tools section in the side navigation menu, select Scheduled Processes.

1. In the Scheduled Processes window, click Schedule New Process and search for the Load Process File Import program.
2. In the Load Process File Import window, select Process Lease Actions as the import process.
3. Search and select the CSV file created in the previous step from the Data File dropdown and submit.
4. Verify the process completes successfully.

Transfer Import Data from Interface Tables to Lease Accounting Tables

From the application's Search Lease page, select Import Leases from the drawer panel. In the Process Lease Actions page, the
following fields are available:

• Action Type - You must select Import from the dropdown.

• Business Unit - Mandatory field.
• Load Request Identifier – Optional. You can select the load request identifier to import leases associated with a specific
load request.
• Interface Lease Identifier From – Optional.
• Interface Lease Identifier – Optional.

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After you enter the information above, you can submit it. Then, navigate to the Lease Dashboard to verify in the Process
Request table that the process completes successfully.

You can access the log and output files from the process request table to verify the process completed as expected and review
errors for each lease if any.

Validate, Complete and Activate Leases

Depending on the Target Status you selected for each of your migrating leases, you may have to complete the activation process
for each lease from Lease Accounting's pages.

When you migrate leases to Lease Accounting, you can indicate each leases' target status in the import spreadsheet. The statuses
you can select are Draft, Completed, or Active. The chosen status determines the extent to which import programs will process
the lease:

• Draft - The lease is created but is not validated. Although the lease is not validated, some basic table level checks are
performed to complete the data. These checks are listed in Doc ID 2775004.1, which is available through Oracle
Support.
• Completed - The lease is created, validated, and schedules are generated. In addition to the basic checks, a list of lease
level validations is invoked to ensure information is complete and consistent in the entire lease. Also, liability and
right-of-use balances and amortization schedules are generated. A full list of these validations is in Doc ID 2775022.1,
available in Oracle Support.
• Activated - The lease is created, validated, schedules are generated, and the lease is activated. After a lease is activated,
any changes or adjustments must follow an amendment process.

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Key Calculations
Lease Liability and Right-of-Use are calculated and maintained for every period after the lease amortization start date you enter
for each lease. A high-level description of the calculations is displayed below:

a. Lease Liability: Cash flows marked with the 'Liability' checkbox, which have a payment due date on and after the lease
amortization start date, are discounted using a rate from the discount rate index selected in the lease to arrive at the
Lease Liability. Interest amounts are calculated using this discount rate for all periods after the lease amortization start
date.
b. Right-of-Use Finance Lease: When the user provides a right-of-use value for a migrated lease, it is amortized on a
straight-line basis over the asset's remaining life after the lease amortization date. If the user does not provide this value,
cashflows marked as 'ROU' enabled are discounted to calculate the right-of-use balance using the same logic to calculate
Lease Liability.
c. Amortization expense: It is calculated by straight-lining the right-of-use balance between the lease amortization start
date and the expected lease or asset end date.
d. Right-of-Use Operating Lease: When the user provides a right-of-use value for a migrated lease, it is amortized with the
difference between Lease Expense and Interest Expense over the remaining life of the lease after the lease amortization
start date. If the user does not provide this value, cashflows marked as 'ROU' enabled are discounted to calculate the
Right-of-Use balance using the same logic to calculate Lease Liability.
e. Lease Expense: Lease Expense for a non-migrated lease is the mean of cash outflows per period. For migrated leases with
the Right-of-Use value provided by the user, lease expense is the sum of that value plus the interest expense from that
payment. For example, if the Right-of-Use value provided is $100,000 and a projected interest expense of $10,000, then
the total lease expense is $110,000. The total lease expense is straight-lined over the remaining life of the asset or lease
after the amortization start date.

Reconciliation and Exceptions

Migration Review and Reconciliation

To ease the review of the process of both lease information and lease balances, Lease Accounting provides you with the following
queries:

• Lease Abstract Query – Extracts lease information into a report to help you compare the imported lease data with your
legacy system information.
• Opening Balances and Lease Expenses Query - Extracts accounting balances as entered and calculated in Lease
Accounting to help you identify differences with your expected balances. This information is available through Oracle
Support Doc ID 2775002.1.
Note that there could be differences derived from rounding and calculation factors for which you need to make adjusting entries.

Lease Accounting Dashboard

When migrating your leases, you can rely on the lease accounting dashboard to provide easy visibility of the following:

Import Errors - The import exceptions tab in the Leases: Book table lists leases that have failed to import along the with reason.

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Import Programs Status - The Process Requests table displays the process requests status and provides access to the log and
output files of both the following import programs needed for lease migration:

• Load Interface File for Import – Process Lease Actions

• Process Lease Actions – Import Interface

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