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IFRS 16 effective from 1 January 2019 affected all companies with long-term contractual lease obligations recording their accounts in accordance with IFRS.

Accounting under IFRS can create additional challenges for companies in their business processes. In particular, as accounting regulation grows, companies are forced to ensure that business management systems comply with reporting standards, including IFRS 16. Secondly, the time taken to adapt business management systems to IFRS 16 is limited. Thirdly, operational efficiency is a key issue – how to implement new requirements with the same number of staff and in the same business management system (without using additional sources – calculations in Excel, etc.).


Under IFRS 16, lessees are required 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 are calculated and recorded as the net present value of future cash flows, discounted at the contractual discount rate.

 

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Companies are also required to account for the right of use asset or simply assets, which are also calculated as the net present value of future payments and is depreciated over the term of the contract.

 

An effective way for companies to cope with the business process challenges listed above is to supplement their existing business management system with a solution designed specifically for IFRS 16. It is particularly useful to have a solution that covers the accounting management of IFRS 16 contracts, from the signing of the contract, the calculation of long-term liabilities, the right of use asset, to the end of the lease or early termination of the contract.

Benefits for the Business

The implementation of IFRS 16 ensures a more transparent presentation of the company’s financial information to shareholders and potential investors. The implementation of a specialized solution also provides the technical means to implement this standard.

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.
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.  
English Nuo 2019 metų sausio 1 d. įsigaliojęs TFAS 16 (angl. IFRS 16) palietė visas bendroves turinčias ilgalaikių sutartinių nuomos įsipareigojimų bei vykdančias apskaitą pagal IFRS.