• IFRS 16 – Step by step towards full compliance

As a company, you are working year after year to comply with new regulations. If you have just completed the implementation of the GDPR, IFRS16 (the new lease standard) is already upon us.

To make the process to full compliance as easy as possible, we would like to take you through this step-by-step plan.

By Job Hakkert, September 2020

1. Determining IFRS16 applies to your company

First, you determine whether IFRS16 will apply to your company. This will soon be the case, as all leases with a term of more than 12 months must be reported under IFRS16. Only leases of assets with a new value under $5000 are excluded. For example, if there are car leases, IFRS16 will already apply. Of course, you must report according to IFRS for all of this to be the case.

2. Collect all lease information and determine the scope of your IFRS16 project

Once step 1 has made it clear that IFRS16 will be applicable, it is very important to find out as soon as possible how many lease contracts are in the company. With only a few contracts, administration is of course easy, but for many companies, the amount of contracts quickly increases. It can then take a lot of time to make an inventory of everything, as there is often no clear overview of all contracts and they can fall under different departments. With a large number of contracts, it will be a serious project to standardize and administer everything, for which sufficient time must be taken.

3. Determine the data model, the approach, and the relationship with your financial report

You then determine which contract data will be administered and how this will be translated into financial reporting. There are also several other choices to make. For example, do you include contracts with a term of fewer than 12 months or a value of less than $5000? And do you start reporting contracts as soon as possible or does it become one big change when it is mandatory? This has an impact on the final approach of the project.

4. Create a project team and adjust processes, roles, and responsibilities where necessary

Compliance with IFRS16 is quickly underestimated, so it makes sense to divide responsibilities and appoint a project team early on. There will need to be a collaboration between many departments and the CFO will ultimately be central to an impactful transformation. In addition, people will also have to be responsible in the future for the correct administration of contracts and current processes will have to be adjusted accordingly.

5. Implement a lease accounting system

Now that there is a good picture of the number of contracts, the first choices are made and the responsibilities are divided, it is also important that a good lease accounting system is put in place. The number of calculations and the complexity quickly increase and a good solution for this is of great importance, in addition to good reporting, it also offers a lot of added value if the impact can be viewed under different scenarios. There is now a considerable list of software manufacturers with IFRS16 applications, at Finext we have experience with the solutions of CCH Tagetik, Sigma Conso, Anaplan, SAP, Oracle and, OneStream. These are distinguished, for example, by differences in ease of use, implementation time, and ease of integration.

6. Calculate, model, and determine the effects on financial results

When the system is implemented and all contracts have been loaded into a database, the calculations can be performed. The effects on profitability, solvency, and other ratios / KPIs will be large, so it is useful to be able to prepare for this as early as possible. An estimated $ 3 trillion is added to balance sheets worldwide.

7. Report

Finally, these steps lead to correct reporting under IFRS16. The deadline of January 1, 2019, is soon approaching and the first steps should already have been taken. It is advisable to have IFRS16 in order quickly so that the focus can shift to future impact.

Events

We regularly organize knowledge events, webinars, and round tables about IFRS and tool sets. Look below for short reports, webinars, or the agenda of these events:
Manage IFRS16 met Anaplan – webinar

Consolidation & Corporate ReportingGovernance, Risk & Compliance