Discount Rate Profile(s)

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Discount Rate Profile(s)

Discount Rate Profiles take the guesswork out of determining the discount rate to use when calculating the Present Value of lease expenses. As accounting schedules are created, the system will automatically match to the appropriate discount rate. This approach enables a consistent methodology, reducing the risk of human error. Global organizations will have hundreds of discount rate profiles that require updates quarterly, or even monthly. The ETL feature of CoStar can be used to import profiles in bulk.

 

A profile is defined by the following attributes:

 

Annual Discount Rate

Annual Rate Type

Effective date

Term

Currency (optional)

Country (optional)

 

Click here for a video reviewing the following topics:

How to transition pre-existing profiles

How to upload rates from a spreadsheet using the ETL tool

Profile-matching to new accounting schedules

Examples of remeasurement events such as renewals and impairments

 

Best Practices

Archive pre-existing profiles that do not have attributes defined for country, currency, effective date, and accounting term.

Delete existing profiles before adding new ones via ETL.

Upload rates via ETL template. Note: On the first upload, it is helpful to load rates going back to the earliest date needed, in the event a lease needs to be added retroactively.

Determine the cadence for uploading rates. This will typically be monthly or quarterly. Assign this recurring task to a CoStar administrator.

Determine if the Direct Entry setting should be enabled or disabled.

Be sure to review the Modification Impacts Scope option in the Calculator pop-up menu before you edit an amortization schedule. This setting is turned ON by default.

 

FAQ

How do I transition to start using this feature?

Existing profiles prior to release of this feature will not have these new attributes for min term, max term, currency, and country populated. Pre-existing profiles will still be available as choices in the drop-down list on the accounting page.

The recommended approach is to archive the existing profiles, and then use ETL to import the current applicable rates with the attributes defined. Archiving the existing portfolios will preserve any schedules using the rate while not allowing new schedules to use archived rates.

 

What happens if I change a discount rate profile?

Changing the discount rate at the profile will also update associated schedules and recalculate the amortization table.

Only amortization schedules with a status of "Scheduled" will be recalculated.

Amortization schedules that have already been processed (i.e., In Process or Historical) will be modified to reflect the direct entry method, maintaining the discount rate used to calculate the initial amortization schedule.

 

Can I upload discount rate profiles in bulk?

Yes, there is an ETL template for discount rates. We recommend using this approach to upload rates monthly, quarterly.

 

Can I update discount rate profiles via ETL?

ETL will allow a discount rate profile to be updated provide that profile is not in use. If the profile is in use, the ETL template will fail validation.

 

Will the profile name change?

Existing profiles are not being modified. However, when you edit a profile, the name will become automatically populated using the profiles attributes of Annual Rate | Term | Effective Date | Currency | Country.

You can still see your original Profile Name in the ad hoc report until you edit or save the discount rate profile.

 

How do I populate my existing profiles with the new attributes for term, currency, and country?

The recommended approach is to archive the existing profiles, and to then use ETL to import the current applicable rates with the attributes defined. Archiving the existing portfolios will preserve any schedules using the rate while not allowing new schedules to use archived rates.

 

What happens when I archive a profile?

Archived profiles do not appear in the discount rate profile drop-down list when adding/remeasuring accounting schedules. Any existing schedules that are using the profile will not be modified.

 

Why can't I see any Discount Rate Profile options when creating/remeasuring a schedule?

If you are creating/editing a schedule and the Begin Date of the schedule is prior to the Effective Dates of the discount rate profile, the system will not suggest any profiles to select, and will default to Direct Entry only.  

 

Note that you can still see your original Profile Name in the ad hoc report until you edit or save the discount rate profile.

 

Discount Rate Profile Settings

Before you start creating discount rate profiles, you will want to set up your discount rate profile settings. Note that these settings are defined at the Portfolio level.

 

1.From the Portfolio home page, in the Financials section, under Accounting Settings, click Manage Accounting Settings. In the left navigation menu, click Settings.

2.Choose settings according to your preferences for the following fields:

 

Discount Rate Matching - Turn ON to match accounting schedules with a profile based on the Effective Date, Term, Local Currency, and Country. If this setting is turned OFF, a user will have to choose a profile. All profiles will display, showing alias names first then ordered by default profile name.

Min Months Operator - Choose the operator to determine if the minimum months will be included or excluded as a match.

Max Months Operator - Choose the operator to determine if the maximum months will be included or excluded as a match.

 

Discount Rate Profile List

1.From the Portfolio home page, in the Financials section, under Accounting Settings, click Manage Accounting Settings.

2.In the left navigation menu, click Discount Rate. The Manage Account Settings - Discount Rate page is displayed.

3.Switch between portfolios by selecting them from the Portfolio drop-down menu.

4.Click Add New to add a new discount rate profile.

 

Adding Profiles

1.Select the Portfolio that you want to add a discount rate profile to. You can switch between portfolios by selecting them from the Portfolio drop-down menu. Since this is a Portfolio-level setting, profiles that share the same rate details will need to be set up for each relevant portfolio and cannot be shared across portfolios.

2.Click the Add New action button from the discount rate profile list page.

3.Input the following fields:

Discount Rate (Required) - Input the annual discount rate. (i.e., input 5 for 5%, not .05)

Accounting Term (Required) - The Term is defined by a minimum and maximum number of months. For example, input 12-36 months to match this rate to leases that are 1-3 years in length.

Effective Date (Required) - This will match this profile to accounting schedules added/remeasured beginning on or after this effective date.

Currency - This will match to the accounting schedule's local currency. If currency is not defined, then the profile will be available to all accounting schedules regardless of the local currency.

Country - This will match to the country defined for the lease or building record. If country is not defined, then the profile will be available to all leases.

Annual Type - Choose APR, Annual Percentage Rate, or APY, Annual Percentage Yield.  This will determine the formula used to calculated the effective interest rate.

Profile Alias - Allows you to give a unique name to a discount rate profile. If populated, the application will display the alias when selecting a discount rate profile on the accounting page. Use the alias to display your own custom name if you require additional descriptors compared to the system defined profile name. Note: The Profile Alias cannot be updated via ETL if the profile is used on a schedule.

 

Note: The currency and country fields are optional. If you need a global rate to use, you can leave the currency or country value blank.

 

DiscountRateProfileFields_Version30

 

Importing Discount Rate Profiles via ETL

Global organizations will have hundreds of discount rate profiles require updates quarterly, or even monthly.  The ETL feature of CoStar is used for this purpose.

1.Navigate to the ETL tool in the Admin module.

2.Download an existing template with an object type of Discount Rate Profile. If a template does not exist, click the New Template button to create it.

3.Upon downloading the template, you will be prompted to pick a portfolio.

4.Open the template in Excel.

5.Populate the template with your rate information.

6.Once the template is populated, click the Import Data button to complete the process.

 

image2020-3-27_15-34-0

 

image2020-3-27_15-41-20

 

Archiving Profiles

Profiles in use cannot be deleted, only archived. If a profile is associated to an active accounting schedule, the profile is considered in use and therefore cannot be deleted. You can archive profiles that are in use.

Archived profiles will remain listed on the Manage Profiles page.

Archived profiles will not be available for a user to choose when adding/editing an accounting schedule.

If you edit/remeasure an existing schedule that is associated to an archived profile, the system will prompt the user to choose a new profile.

 

Matching Discount Rate Profiles to Accounting Schedules

Profiles are matched to the accounting schedule using the following criteria:

Portfolio - Will match to discount rate profiles associated with the same portfolio as the accounting schedule.

Currency - Local currency of the accounting schedule must match the profile's currency.  Note: Profiles with a null currency are also matched, but a profile with a matching currency is considered a better match than a profile with null currency.

Term - By default, the number of months of the accounting term must be within the profile minimum and maximum number of months. Example shown below is when X is the number months of the accounting term. Note that if the term is exactly 36 months, then we show the profile with the range of 18 < X <= 36. The Min Months and Max Months operators can be modified to be inclusive or exclusive. Go to Settings on the Manage Accounting Settings page to make changes.

o0 <= X <= 18

o18 < X <= 36

o36 < X <= 48

Country - For real estate leases, the country is defined at the building record.  For equipment leases, the country is defined at the lease record. Note: Profiles with a NULL country was are also matched, but a profile with a matching country is a better match than a profile with null country.

Effective Date - Group profiles by the same currency, country, term combination where the effective date is equal to or less than the schedules begin date.  Then, show only the profiles with the nearest effective date.

Ranking Multiple Matched Profiles

oIf multiple matched profiles return, sort by the discount rate ASC such that the first in the list is the lowest discount rate.

oNote: Matched currency or country values will rank higher than profiles with a null currency, country values.

 

Modification Impacts Scope

There is a new field available for remeasuring schedules called Modification Impacts Scope. This applies to Operating 842, Finance 842, and IFS 16 classifications.  When Modification Impacts Scope is unchecked, a new remeasure event will use the previous schedule's annual rate. When the option is checked, new remeasures will find a new matching discount rate or, if Direct Entry is enabled, allow for direct entry of a discount rate. For example, when performing an impairment, the scope of the lease does not change, therefore the discount rate should not change.

 

When adding initial schedules, Modification Impacts Scope will always be checked .

For impairment measure events, Modification Impacts Scope will always be unchecked.

For all other remeasure events, Modification Impacts Scope will default to checked but it can be unchecked.

 

Click the calculator icon next to Annual Rate to view the pop-up and find the Modification Impacts Scope setting.

 

image2020-4-1_12-34-14

 

Remeasuring with Direct Entry Discount Rates

When you remeasure a schedule with a direct entry discount rate, and the remeasurement changes the scope of the lease, the discount rate will default to blank instead of the direct entry discount rate from the previous schedule. The appropriate discount rate at that remeasurement date should be entered.