Lease accounting requirements are demanding. And in healthcare and public sector organizations, the complexity only increases. Between multi-standard compliance obligations (ASC 842, GASB 87, GASB 96, IFRS 16), right-of-use asset tracking, and the ongoing workings of lease modifications and subleases, finance teams need a solution that can support the whole picture.
Infor FSM Lease Management was built to do just that. From initial classification through remeasurement, sublease handling, and period-end reporting, the module covers the entire lease lifecycle
Principal Consultant Zach Custodio, will walk through the breadth and depth of what Infor FSM Lease Management can do.
Session attendees will learn how to:
- Classify leases correctly under ASC 842, GASB 87, and GASB 96
- Configure lease types, authority codes, and date codes to support reporting and approval workflows
- Handle non-lease components and supplemental cost treatment within the system
- Process remeasurement and adjustments for lease extensions or reductions
- Set up and route sublease invoices through Receivables
- Run Lease Analysis and Disclosure Summary reports to meet period-end requirements
If your team manages leases and wants to see what Infor FSM’s Lease Management module is truly capable of, this session is for you.
Transcript
Zach Custodio
All right, welcome everybody to today’s webinar on Infor FSM Lease Accounting, previously known as Lease Management. My name is Zach Custodio, Principal Finance Consultant here at RPI, and I’m excited to show all of you the enhancements and new functionality Infor has made in the lease accounting module.
Starting off, what is lease accounting? It’s an integrated solution for lessee accounting requirements. The lessor tasks are not currently addressed in the solution. So if we’re leasing a building and we’re the one paying that rent, we’re the lessee, and it does track that. If we are the ones that own the building and are renting it out to another organization, that would make us the lessor. That piece is not currently addressed, but it is on the Infor roadmap and hopefully available soon. The lease accounting module does support ASC 842, as well as the GASB 87 and 96 accounting standards, and IFRS.
One of the big things that the lease accounting module is going to do for us is classify the leases. It tells us how we need to account for them, depending on our ASC or our GASB accounting standards, which we identify on the FEG or the individual GL companies. It’ll classify them into three different pieces. The first is our short-term leases. These are typically 12 months or less and are basically recorded as a straight-line expense. Then we also have our operating leases, which are commonly referred to as our long-term operating leases. And then finally our finance leases. These used to be called our capital leases.
They both have right-of-use assets, and the journal entries are generated through AP, LM, and AM, so all the different sub-ledgers are going to track these leases and account for them properly. GASB 96 is addressed with those sub-ledgers as well. Infor is going to go through a classification test in order to classify these based on what we put on that lease record: things like whether it’s over the 90% threshold of the fair market value, the 75% economic life threshold, or whether we’re accruing towards ownership. All the different fields within that lease record are used to classify these leases properly. If we disagree with what Infor classifies them as, we do have the option to override that as well.
Non-lease components. These are supplemental costs such as taxes, maintenance fees, and insurance that are attached to these leases. You can kind of think of them as an add-on cost. Used to be called executory costs. We have a lot of different options around these. First of all, they’re not required, so you don’t have to have them. We can remit a separate payment or pay them together. So if we have building rent and CAM, we can pay them on the same check or on separate checks. We can also pay them to two different vendors.
So if our building rent is paid to one vendor and our CAM is paid to another, Infor can accommodate that. And we can also track them and not pay them. So if our AP department is receiving the invoices quarterly for our CAM and wants to pay them on just a standard non-PO invoice, they can do that. We can still track them in lease accounting and just mark them as do not create payables invoice. This way it’s still tracked in our reports for life-to-date invoice expenses and that sort of stuff.
The reason we use these non-lease components instead of just building all of the cost into the core lease payment would be because these non-lease components are not factored into that present value of our lease payments. That present value is what eventually turns into our lease liability, and we would not want these to be included.
These types. These are just ways to group leases with common characteristics together. Think of it like an asset type, but it’s not going to drive any of our actual accounting entries; it’s purely for reporting. We can use them for processing. I can say I only want to create invoices for the current month for equipment leases and leave the other types out there for someone else to process. I can also run reports and say I want to see my life-to-date expenses for all building leases or all software leases, that type of stuff. So both processing and reporting.
Approval. All lease invoices are approved before they can be interfaced over to AP for our payment processing. And these are going to use our authority codes that a lot of you are probably familiar with in a lot of the other Infor modules.
Date codes. This is an optional feature, but I find that it’s really helpful. They can be used to track various events and important milestones within that lease’s life. You can create a code, let’s say a renewal code, and then attach a date to that, and that’s put on the actual lease records. We do this for all of our leases, and then it kind of helps us run one big report to track all those important milestones. I can run a report and say I want to look at all of my renewal codes for the next six months.
And it’ll print out a list of all of my leases that have a date with that renewal code and that timeframe. And then that way I can address those if we want to take advantage of renewal options or scheduled maintenance or any of those reminders that could be helpful for us so we don’t miss those windows.
Remeasurements and adjustments. This is one of the biggest enhancements and one of my favorites. This is new functionality that the old module could not do for us. But Infor can now adjust leases for extensions or reductions, as well as payment amount updates, anything that would affect that present value calculation. We can adjust all of those now. It’s going to automatically recalculate and adjust the right-of-use asset amounts, the liabilities, the depreciation. It’s going to reconfigure our amortization schedules, and do all of that for you without any manual spreadsheets, tracking, or updates.
Sublease accounting. This is another really nice feature where we can create a header lease. Let’s say we have a $5,000 building payment each month, but we’re renting out one of the floors to another organization. We can create a $1,000 a month sublease invoice to that AR customer. This is going to integrate directly to our AR side and follow that same processing of AR invoicing with that IDM template, or we can print and mail or email those invoices out.
The one catch here is subleases cannot be modified, impaired, or terminated early. So we definitely want to take that into consideration. All right, that’s the core functionality of lease accounting and what it can and can’t do. Now I’d like to get into FSM and give everyone an overview of what the setup, processing, and reporting consists of.
All right, so here I am in my Infor FSM sandbox, and we are in the lease accounting module here. We can see our dashboard with a handful of leases that I’ve created in our system. And as I click through the different ones, we can see these different boxes update with key information. It’s going to have our lease name, the vendor, beginning and end dates, the current liability amounts, all of the invoices that are generated attached to this lease, the next payment when it’s due, our right-of-use assets, and all the classification test information for us.
So I’m just going to go into one of my leases. You might notice I have two different companies here, Company 10 and Company 20. Company 10 is set up for our ASC standards, and Company 20 is set up for GASB. So you can set that at the FEG level or the GL company level if you have two different accounting requirements for each company. So let’s get into our first lease here. I’m going to drill in and kind of show you what the lease record looks like.
So at the top, in the header, we have our company and the accounting method that’s assigned to that company. We get a lease name and then our current lessor. This is pulling directly from our vendor master list, as well as a classification test up here. We have our from and to dates, and then we have a lot of fields that are going to influence that classification test: our lease term, the remaining life at the beginning date of the lease, as well as the total life of that leased asset. Are we accruing towards ownership? Different pieces there.
We have a lot of different amounts that we can track: security deposits, down payments, initial direct costs. If we populate and know this fair market value at inception, that’s also used in the classification test.
Payment tab. This is going to be one of the most important tabs on our lease record. This is where we attach the lessor, again pulling directly from our vendor master. First payment date, payment timing. We get to pick our invoice prefix. If we don’t fill anything in here, it’s going to default directly from our lease name itself. We put in that discount rate and then all of our different accounts for those entries that it’s going to create. We have our lease liability and our lease interest.
Deferred rent, we only need that if we’re using the straight-line expense method, and then our operating lease expense. This is a finance lease, so we’re not going to have that operating lease expense field populated.
Next tab is our options. These are all optional. It’s just where we can fill out additional information for the termination options, renewal options, and other miscellaneous ones, like is it a simulated lease or was this acquired through a business combination, that type of stuff. Then we get into our payment schedule. We can have as many payment schedules as we need. Typically, one is enough. And I’ll drill into it here. On the main tab, we just have our company, our lease, and our vendor, all defaulting from that lease record.
But then we tell it if we want to create the invoice or not. And then we have some overrides here with our process levels, income codes, and accrual codes. If you would like all of your lease invoices to have its own accrual code or income code, we can do that here. On the payment detail, we’ll see each individual lease payment that we’ve identified here. There are a lot, especially for some of these lease invoices. We can enter these manually. As always, ISD is one of our best friends, and we can load those that way. And if they’re pretty similar, we can use this recurring payments piece where we put in a beginning and end date, the frequency, and the amount.
By doing that, it automatically puts that $250 each month for us. This check mark next to it here just shows that the invoice has been created, so we know if we’re caught up or not. Right now it looks like we’ve only paid May, but we can track all those different pieces here. If you had a non-lease component, you would also see those here.
And we just have another view of that all lease payments piece. I want to get into another lease that does have a non-lease component.
So again, we’ll get in here, look at my payment schedule, open this up, and this is going to look a little bit different because as we can see in this non-lease component column, we have a maintenance piece that’s getting charged quarterly for that $100. The first month was processed, and we can see that this combined with lease payment flag was set to yes. So the payment that went to this vendor was for $1,100. If this was set to no, it would send two checks: one for $1,000, one for $100.
We can update these because I know CAM and stuff can change all the time, especially on a multi-year lease. So if we need to update those, we can go ahead and save those and update those as needed. Same thing with the payment schedule. If those go up, we can go ahead and update that.
I want to get into the sublease. So we’ll go back and look at the first lease that we looked at today. Go back in here. I just click this to get to our home screen, and I’m opening up that original lease. And we can see we have something on the sublease tab. So again, for this payment schedule, we are paying $250 a month. And on our sublease, I created a billing schedule.
We can see that $50 a month is getting billed back out to another organization, which needs to be set up in our AR customers list. So we can see here with that green check mark again that the invoice has been created, and this was sent over to AR. We had to release it and then post it so that it would interface over. I have another tab open right here in our receivables module, and we can see that my sublease example invoice for $50 did come over, billing my coworker Seth here, and this is just now a standard AR invoice. It is open, and we can apply payments to it now, so it’s going to follow that standard AR process from here on out.
All right, getting back out. We review the payment schedule. The present value piece, this is all what Infor calculates for you. Any adjustments or modifications will have this updated, but we can see our current balance and our right-of-use asset. The first month of this was processed, so you’ll notice these numbers are different here. And it has our percents. So the two main checks it’s doing for our classification test are the economic life test and the present value to market value percentage, which is calculated here so that it knows it was a finance lease.
Getting into our assets tab here, this is our right-of-use asset. Only those long-term operating and those finance leases require these. And this is set up just like a normal asset within the AM module. The only difference is on that main tab, you’re going to populate the lease company and the lease number itself so that it knows to tie back to this. This asset must be created and released before you can create and release the full lease, and then when you’re terminating or closing the lease, it also needs to be disposed of on that side too.
Non-lease components, this is where I track if I’m creating those and building those into my payment schedule. I have to create it here first. We have the amortization schedule that Infor is automatically calculating for us, our subleases, which we talked about, and then finally our attachments. We’re going to start right to left over here. So on the documents side, this is where we can attach any of our lease agreements and our actual legal documents, anything we need here. Comments, you can add comments at any point, whether it’s unreleased, released, closed, terminated, whatever status this lease is in, you can always put in comments and track those.
And then our dates, this is what we talked about with those renewal date codes or the maintenance date codes or any reminders for important dates. We build those out here, and we can run reports on those. If I want to transfer my lease, it’s as simple as clicking transfer, going through these different fields, kind of those wizards as Infor calls them, and putting in our transfer date, if I’m transferring it to another company.
Infor knows I’m probably going to want to update those accounts as well, especially that company piece. So we can go ahead and put it through there. The other option instead of transfer is our modifications.
On the modification piece, we put in our modification date, a lot like an asset adjustment. We can say if we’re modifying the term or not, is it an extension or a reduction? Are we changing the implicit interest rate and all the different pieces within the payment schedule? You can go through this wizard and make any adjustments you need to as well. Once those are made, you’ll get the option to recalculate everything. It’ll actually make you recalculate before it lets you release it again. And all of our different amounts, our present value pieces, will be updated as well. So again, no more manually calculating all that. It’s going to do all of that work for you.
Going through our processing piece, I’ll click processing over here. And we can see we have some mass lease processes or just our standard individual lease processes. First thing is creating invoices. So when I run this job, pretty standard Infor job, it’s going to look at all of my payment schedules for all of my released leases, look at the next open payment or payment that hasn’t been made, and according to this information, grab it and actually create that invoice.
The next piece would be to interface it over to payables. Well, we have to approve first. Everything has to get approved. And then once it’s approved, we can interface it to payables. It’ll interface over to payables as a released invoice. So it’s open to pay and get picked up on that next check run, or whatever that pay-through date is, treated just like any other normal non-PO invoice. At month end, we would go ahead and calculate interest for all of those finance leases, and go ahead and run our posting job.
And then we can actually close the period. For approved payments, you can do this individually or in mass. And then we can also release all of them as well.
Let’s get into my reports. We have a lot of canned reports, out-of-the-box reports, as well as our lease list. List views are really powerful. We can configure or personalize these to include whatever information we want. The first one is just a quick view of all of our leases, but any of these fields you don’t want to see, or other really important fields you do want to see, again, we can personalize all of these.
One that a lot of the lease accountants or processors are going to be using is this lease invoice piece. This list, of course, will continue to grow as we process more leases for each period, but you will be able to track and filter if they’re approved, if they’ve already been posted, and all the different information here. When they are not posted or approved yet, we can actually get into them and update them if we need to charge to a different department or account, change the amounts, anything like that, we can go ahead and do that as well.
We get list views of all of our different payment schedules. We drill into these leases, and we’ll see that payment schedule, payment balances, as well as our disclosure summaries reports. So we have those disclosure summaries for both ASC and GASB. I don’t have a lot of leases in the system right now, so you’ll see a lot of blanks up until August here, but we can see we have our right-of-use production, our interest on liability, our cash paid, operating cash flow, as well as our finance cash flow, and so on.
Same thing, you can get the exact same view for our GASB. Since we have one company for each, this is nice to be able to kind of separate those out and get that information here. Any of these blue numbers within these list views or these reports are drillable, they’re dynamic. So if we click into those, we’ll see all the different transactions and leases that make up this $243.75 amount, as well as a lot of filtering options.
All right, I have a couple of reports that I’m looking to show you guys. First we have our lease analysis report. Drill into this, and we can see kind of a standard lease reporting output. The first page is just our parameters on what we ran for this. Then we get down into our year-to-date lease report here with all of our different years and our periods, payment amounts, interest, principal, remaining obligations. This is all broken out by lease and vendor. And then it’s going to give us nice totals at the bottom.
That is a quick overview of the lease accounting module within Infor. Hopefully this gave you some information to identify if this module is right for you and will meet your needs. But if you have any questions, please feel free to reach out at questions@rpic.com, and we’d be happy to discuss this further with you. Thank you.
