Here are five things early adopters of IFRS 16 say that could help you execute your IFRS 16 implementation project successfully.
Finding and assessing lease documentation will take longer than you expect
Finding and assessing all of your leases, including reviewing contracts for embedded leases, will take you longer than you expect. It’s unlikely that all of the required data is held in one location, or that data held by multiple teams is consistent.
The team at Nomos One can verify this! In almost every company we’ve worked with, there are missing or incomplete documents, or spreadsheets that include data that doesn’t match up with the relevant agreements. Starting your implementation project with missing, inaccurate or duplicate data, or incorrect dates and rates will significantly delay implementation.
IFRS 16 is complex and requires significant judgement
There are a number of areas that require significant judgement or assumptions to be made:
- Transition approach
- Definition of a lease
- Short term and low value exemptions
- Purchase options
- Residual value guarantee
- Classes of assets
- Practical expedients
- Subsequent measurement
Making these judgements will take time and require careful consideration. The decisions you take will not only impact the resources required, the cost, and the timeline of your implementation project – but is also likely to affect financial ratios, the financial performance and position of your company, and your ability to present comparable financial trend information.
The team at Nomos One has created a guide to choosing a transition method. You can download it here.
You need a dedicated IFRS 16 project manager
Make sure you appoint a project manager who can keep track of all of the moving parts of your IFRS 16 implementation project and ensure all relevant stakeholders are consulted.
Your project plan should cover off all aspects of implementation including finding and assessing leases, stakeholder consultation, transition decisions, assessing financial impact, gathering business requirements, reviewing technical solutions and selecting software, negotiating contracts, onboarding data and documents, training of users and handover to business as usual.
A good project manager will also make sure there are procedures for documenting decision making, risk assessment and mitigation and change management.
Take an organisation wide view
IFRS 16 implementation affects more than just the finance team. Any team involved with leasing – legal, procurement, fleet, IT property management, or business support – may hold data or have requirements that shouldn’t be overlooked. You’ll also need their buy-in when it comes to putting new processes and procedures in place and implementing new systems.
A good project manager will ensure all relevant stakeholders are consulted, but it’s also critical that the project team is made up of the right people.
IFRS 16 implementation is the perfect time to look at how lease management can be streamlined across your entire organisation.
As well as giving the finance team confidence in their IFRS 16 compliance, an end-to-end lease management and lease accounting software solution can provide a global source of truth for previous siloed teams, automate manual and time-consuming tasks, ensure you never miss a lease event again, and eliminate the need for multiple software tools.
Appointing a project sponsor and a steering group can help ensure the project takes decisions that will benefit the organisation as a whole, and not just the needs of one team.
Communication is key
IFRS 16 may change the financial performance and position of your company, so it is critical you inform leadership teams, boards and shareholders of what is likely to change, and why.
Implementing new software, processes and procedures, like any change, requires specific communications designed to bring stakeholders along on that journey.
Make sure you have a high-level communications plan outlining who you need to communicate with and when, what the key messages are and what medium you’ll use.
Excel is not the best solution
Excel is one of the most trusted tools in the accounting industry, but it is not the right choice for IFRS 16. Without a single repository for all of your lease information it is almost unavoidable that critical lease data held by teams across your organisation will diverge. This will impact the integrity of the data you are relying on for reporting purposes.
IFRS 16 is particularly complex. World class software solutions like Nomos One have been designed in conjunction with industry leaders and tested against hundreds of scenarios provided by global accounting firms – your spreadsheet hasn’t.
Making changes to complex formula can introduce unnoticed errors that can dramatically alter your company’s financial position, and the more leases you add to your portfolio the more unmanageable Excel becomes.
We’ve written a blog post dedicated to why Excel isn’t right for IFRS 16.
Get in touch
The team at Nomos One employ chartered accounts who live and breath IFRS 16 and have developed software that will benefit every team involved with leasing in your organisation. Get in touch to schedule a personalised demo.