Phase 1 Requirements Analysis
Client Issues
The client was formerly a joint venture between Japanese and US companies, but was made a wholly owned subsidiary of the US parent company, at which time it became necessary to adhere to US accounting standards. Because the company had many outstanding lease contracts with customers, adjusting differences between Japanese and US lease accounting was an issue of utmost importance.
Roles and Accomplishments of Our Consultants
- Created a list encompassing the statements of financial accounting standards (SFAS) for leases and relevant guidelines set by emerging issues task force (EITF) to present to project members an overview of US lease accounting and a high-level explanation of these matters
- Prepared an exhaustive comparison of differences in accounting standards that the client had traditionally used (former Japanese lease accounting and tax codes)
- Explained how individual client transactions such as leasebacks and quasi-lease transactions would be treated under US GAAP
Drew up a detailed list encompassing lease agreement details (lease amounts, terms, items, cash purchase price, etc.) required when applying US lease accounting
Project Outcomes
The client’s lease agreements were all recorded off-balance and expensed as operating leases according to Japanese standards; thus, lease agreements were individually kept at each site, with no central management. Applying US standards to these lease agreements first required the immediate creation of a database containing all new and existing lease agreements.
Phase 2 Applying US Standards
Client Issues
The client immediately created a database of outstanding lease agreements in PDF format, in cooperation with their subsidiaries and dealers. The parent company and their auditors should agree to the reliability of the results of applying US standards to these lease agreements.
Roles and Accomplishments of Our Consultants
- Worked onsite at the client’s lease agreement data input center and maintained data accuracy and integrity while responding to operators’ concerns regarding input items
- Developed a lease classification tool to automatically categorize leases as capital leases or operating leases under US standards based on the input data
- Proposed adjusting journal entries based on the lease classification results and analyzed the financial impact
- Drafted accounting manuals for the client in implementing US lease accounting
Responded to individual questions regarding lease accounting application logic from the parent organization and auditing firms, and obtained proper opinions from both
Project Outcomes
The client’s lease agreement database depended on the US lease accounting tool developed by us to provide journal entry data appropriately. The parent company and auditors then approved these journals.
Phase 3 System Implementation
Client Issues
Our US lease accounting tool was developed in Excel, and therefore required HY Advisors’ support for use by client employees. The client considered upgrading the Excel tool to their SAP-based financial system for continued internal use.
Roles and Accomplishments of Our Consultants
- Explained procedures for processing lease accounting using the Excel-based tool to the client’s employees responsible for their system development
- Created test scenarios and programs for user acceptance testing in SAP
Led user acceptance testing in SAP
Project Outcomes
The automation of the US lease accounting was, as far as possible, made possible within SAP for new agreements from the lease agreement database, thereafter their system runs stably.
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