Takeaways from the 2021 Lease and Finance Accountants Conference Live
The Lease and Finance Accountants Conference returned in 2021 for a one-day, virtual event. Accounting and finance oriented sessions addressed the critical issues lessors are now facing, including:
- Lessor hot topics. This session covered the continuing importance of COVID-related accounting reliefs offered for payment modifications as well as issues related to the certainty of customer payment and its impact on the accounting analysis and other modifications related issues. The session also sought to remind lessors of the changing world of sale and leaseback accounting due to ASC 842.
- Lessee hot topics. In 2021 these primarily related to lessee accounting for lease impairments, modifications and abandonments, which have been a consequence of the COVID-related economic environment.
- Lease and loan sales. Lessors are always looking to sell a portion of their originations, and the issues related to the accounting for these transactions is complex. The central issue of derecognition (sale accounting) and the importance of what is or is not a participating interest was addressed in this session.
- Current expected credit loss (CECL) model. The CECL model has represented a significant change for companies from the old incurred loss model. During this session, the importance of open communications within the business, across functions, along with a thorough review of the loan and lease portfolio was discussed. The impact of COVID on credit assessments was also touched upon.
- LIBOR transition/reference rate reform. The sunsetting of LIBOR and its replacement by SOFR and/or other rates entail a number of operational and business burdens. This general session focused on the operational issues for both existing contracts, including fallback language in agreements, and new contracts written using SOFR or other rates.
- Distinguishing a lease from a service. While this question always existed, ASC 842 has increased the focus on this important question of what accounting literature to apply to
a contract. It was observed that a great deal of effort is being applied to “X as a service” models in order to have transactions kept out of lease accounting, particularly for the customer. The audience was also reminded that a transaction that was a lease under ASC 840 might not be a lease under ASC 842 and vice versa.
How lease accounting and revenue recognition intersect. Lease transactions may include an element that is accounted for under the revenue recognition guidance in ASC 606 or where the lease guidance draws on the concepts in ASC 606. The allocation of consideration in a lease contract is of significant consequence to lessors, as is the evaluation of lease classification and collectability.
- The state of the Federal tax code. This session discussed the high probability of a corporate tax increase if legislation is enacted. A best guess of the expected rate is 25%, and it was noted that lessors should plan accordingly for a world of increasing tax rates. There may also be an expansion of tax credits related to renewable energy.
The sessions were recorded and are available on the Conference Resource Center at www.elfaonline.org/events/conference-resource-center
Save the Date:
The 2022 Lease and Finance Accountants Conference will be held Sept. 12-14 in New Orleans.