Lease agreements get modified all the time; due to a change in the asset or a variation in the lease timeline and price. These modifications are nothing new; however, with the mandate of the latest IFRS 16 Lease this year, entities following the IFRS standard must adhere to the new accounting practices. The IFRS 16 Lease implementation is one of the most disruptive and complicated changes to the Lease standards ever. According to this, a lessee is required to recognize a Right of Use (RoU) asset to represent its right to use, and a lease liability to represent its obligation to make lease payments. The lease liability is measured at the present value of the lease payments and calculated over the lease term.
Transitioning into the IFRS 16 Lease accounting is not easy; it impacts lots of functions, infrastructure, purchases, procurements, taxes, treasury reports, and so on. It is even more challenging for group companies that have lots of lease agreements within each entity, operate across geographies, and use different platforms for accounting.
With business environment changing, regulatory compliance requirements evolving, CFOs need a reliable, easy-to-use solution that can help identify faulty contracts, analyze ‘as is’ contracts, adjust lease rates, identify and alter the agreements that cause variations, and process lease information quickly. Further, a limited number of resources, need for processes optimization, and changing customer preferences necessitates a flexible platform.
In this scenario, maintaining accounting and schedule calculations of each lease contract on a simple Excel sheet will not be enough. You need a specialized solution that can better evaluate your present and future deals and improve the efficiency of lease contract management.
Simplifying IFRS 16 Lease to create competitive advantage
For adapting your company processes to the IFRS 16 standart, you don’t need to implement a whole new ERP system. You can choose to add a module which can be incorporated into your existing ERP system. The main reason for digitizing your processes is that if you’re seeking for more efficient and optimized work, you can simplify the evaluation and calculation of the net present value, Right of Use (RoU) asset and corresponde depreciation, future lease payments, lease liabilities, interest rates, lease schedules, contractual monthly payments, terminations, and other conditions of the lease contracts. With an automized processes you’ll be able to get consistent data collection, calculation, reporting and disclosure capabilities, and policies will be maintained by lessees as per the IFRS 16 accounting standards.
Download the guide "How can new requirements of IFRS 16 be implemented within current ERP and existing staff?" and find out what are the first steps to become IFRS 16 compliant.