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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, 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.

 

Šiaulių Bankas: "Provided calculations and disclosures of new standart to the management of Bank and audit company on time"

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 standard, 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.

Find out more about specialized system for  IFRS 16 standard accounting.

 

Implement the requirements of IFRS 16

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From 1 January 2019, International Financial Reporting Standard (IFRS 16) requires lessees to account for contractual lease liabilities as non-current liabilities when the lease term is longer than twelve months and the lease price exceeds a specified period. Long-term liabilities under a lease contract are calculated and recorded as the net present value of future cash flows, discounted at the contractual discount rate. The contractual lease price is divided into two components – value coverage, which consistently reduces the registered long-term liabilities, and interest, which are accounted as expenses. All of these calculations can be done in Excel, but companies with a large number of lease contracts understand very well that such calculations in Excel and accounting at the level of each contract will be cumbersome. This requires a flexible solution that specifically meets the requirements of IFRS 16. However, is a truly specialized IFRS 16 solution relevant and applicable only to large companies? Consider the benefits of a solution developed specifically for IFRS 16 that is likely to be relevant to all those accounting for long-term lease liabilities.
IFRS 16 effective from 1 January 2019 affected all companies with long-term contractual lease obligations recording their accounts in accordance with IFRS.
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