Up until now, as a lessee, you might have been able to get away with labelling lease software as ‘nice-to-have’.
If you are very organised you may have one, or even numerous, very clever spreadsheets that help you keep track of your many property, computer and vehicle contractual agreements, anniversary dates, rent reviews and expiry dates. If you’re really thorough, you might even have all of your lease agreements saved in the same folder. There is probably someone in your organisation who guards these spreadsheets and files with their life.
That’s if you’re lucky. If you’re not, you might have to dig through the digital filing cabinets, inboxes and even the minds of people spread throughout your organisation – the finance team, the legal team and the property team or the EAs and the PAs, who each have responsibility for one part of the lease jigsaw puzzle. They may be working on different versions of the same spreadsheet, a different spreadsheet altogether, or they’re not looking at it at all because it’s lost in the fog of other tasks that actually fall into their job description.
And that was before IFRS 16 – the new lease standard. This standard is about to change everything. An all in one, end-to-end lease management and lease accounting platform is no longer a ‘nice-to-have’ – it’s a ‘must have’. Spreadsheets will no longer suffice, and neither will just any lease platform. Here’s why.
Changes to lease accounting will affect almost all companies who report under IFRS and are involved in leasing – especially lessees
IFRS 16 will affect lessees more than anyone else. Why? Because leases will no longer be classified as either operating or finance leases and the new standard requires almost all right-of-use assets and lease liabilities to be recognised on the balance sheet.
It goes without saying, but this change is going to make reporting far more complex and onerous. The magnitude of IFRS 16’s impact on your organisation will depend on the level and complexity of leasing activity within your organisation. Some sectors will feel the effects of this change more than others, particularly retailers, airliners, and the transport, travel and leisure industries, but any organisation with more than a handful of leases will need to make significant changes in response to the standard.
It’s not as simple as just adding another spreadsheet
Leases need to be recognised on the balance sheet – that’s just one more thing for the spreadsheet whiz in the finance team to add to the task list, right? Wrong. Lease accounting is no longer a set and forget option. You’ll need to forecast payments for the lifetime of your properties, fleets and other assets and account for renewals, expected changes in rent and discount rates. You’ll have to create new depreciation schedules to meet the requirements of the standard. Other challenges include:
- New measurement criteria for lessees
- New practical expedients
- Frequent re-measurements
- New criteria for sub-leases
- Complex transition options
The implementation of IFRS 16 will be time-consuming and it will directly impact the financial performance and value of the company, not just reporting and compliance – so you need to get it right.
An all-in-one tool reduces risk, gives you confidence that you are meeting your obligations and frees up staff from manual, repetitive and time-consuming tasks
An all-in-one solution will encompass all the leases and sub-leases for your assets, properties and equipment as well as your licences, sub-licences, easements, grants, resource consents and general contracts.
You’ll be able to create new agreements, import existing agreements and access historical and current documents, correspondence, reports, KPIs and events at any time. Automated event reminders and workflows will ensure you don’t miss anything, so you’ll meet all of your obligations. You’ll also be able to send email notifications to relevant people in your team about upcoming actions.
More importantly, an end-to-end solution will take into account all IFRS 16 criteria, so you’ll be able to generate depreciation schedules and asset and liability values for each lease across your entire portfolio. A good tool will support all three IFRS16 transition approaches and will guide you through the process, so you don’t overlook any requirements of the standard.
A good platform will come with a range of pre-prepared templates including portfolio summary, financial period, rent rolls, tenancy schedules, financial summaries, upcoming/overdue events and of course IFRS 16 transition. You’ll also be able to create your own. IFRS 16 reports will be updated in real-time and will be based on new agreements and variations.
The adoption of an-all-in one tool that is IFRS 16 compliant should give you confidence that you’re meeting all of the requirements of IFRS 16 as well as your contractual obligations. It should give you a clear, simple view of the timeline for the life of each agreement. If you choose well, you should see an almost immediate positive return on investment.
Not just any lease tool will do
If you want to see a return on investment there are a few things you must consider when choosing a software provider:
- Is the product designed with lessees in mind?
- Is it truly IFRS 16 compliant? Make sure the claims stack up and that the product has been tested against scenarios provided by international accounting firms.
- Does the company employ chartered accountants and financial experts who truly understand the IFRS 16 requirements?
- Is the security top-notch?
- Is the product flexible and customisable?
- Can you give your auditor access?
- Can all stakeholders use it? Are users unlimited?
- Is it intuitive and easy-to-use? Will your people actually use it?
- Does the company offer training, support, onboarding?
- Is it really an all-in-one solution that offers lease management and lease accounting functionality?
Choosing an all-in-one lease management and lease accounting platform is just one step in your IFRS 16 transition journey, so it’s imperative you make a decision in the very near future.
Nomos One IFRS 16 module
Nomos One has been developed specifically for lessees who want confidence that they’re IFRS 16 compliant.
We’ve spent the last year working with chartered accountants and financial experts who live and breathe IFRS 16 to design a fully integrated IFRS 16 compliant module that encompasses all criteria. It’s intuitive, flexible, customisable and generates all of the relevant outputs. We strongly believe our product is the best on the market – and auditors recommend us to their clients.
IFRS 16 Module