IFRS 16 is a complex standard that brings with it many challenges for finance teams. As the finance person responsible for IFRS 16 implementation you’ll need to fully understand the requirements of the new standard and make a number of judgments and assumptions in its application, for example:
- Which contracts contain leases that meet the new definition of a lease
- Which transition method best suits the organisation
- Which practical expedients to elect
- Whether to apply exemptions on short term leases and low-value assets
- Which leases have similar characteristics and should be grouped in the same portfolio
- Discount rates
- Assumptions on renewals
- Whether to include direct costs in the ROU Asset
- The likelihood of exercising purchase options
- The likelihood of early termination, date and payment amount.
The list goes on.
All of these decisions will impact your company’s financial statements and financial performance ratios as well as the overall success of your implementation project. It’s unsurprising that this considerable piece of work may overshadow less technical implementation tasks.
Early adopters say allocating enough time, and/or giving enough consideration to these ‘non-financial’ tasks directly impacted the success of their implementation projects and the success of BAU (business as usual) lease accounting tasks. Here’s the eight steps that Nomos One recommends you don’t underestimate.
8 IFRS 16 implementation tasks you shouldn’t overlook
Mapping out the current lease management process
Lease management and lease accounting are often plagued by missing documentation, missing, duplicate and inaccurate data and missed lease events like renewals, terminations and rent increases. IFRS 16 implementation provides an opportunity to improve processes and create efficiencies across the entire lifecycle of a lease. The first step is mapping out the current lease management process. This will help you to identify all of the touch points, the holders of lease documentation, and the main stakeholders.
A range of individuals across your company have a hand to play in lease management including people responsible for leasing strategy, contract negotiation, lease administration, asset management, and fleet management, to name a few. Meeting with key stakeholders across all relevant teams will help you to identify existing pain points, ensure you don’t overlook anything important, help you to get stakeholder buy-in to a new process that will support IFRS 16 compliance, and to gather their requirements so you can deliver a solution that creates efficiencies for everyone involved.
Outlining business requirements
A detailed business requirements document will support successful IFRS 16 implementation in a number of ways. It will help you to gain a comprehensive understanding of what you need so you can select the right solution for your organiastion. Identifying your ‘must haves’ ‘should haves’ and ‘could haves’ will help you to assess potential solutions and trade-offs between functionality and price. This information should also help to bolster your business case for choosing the right software.
Review of lease management and lease accounting software solutions
There are a number of lease management and lease accounting solutions on the market. Reviewing these solutions against your requirements takes time. This process usually involved checking out websites, scheduling demos, getting stakeholders involved, undertaking evaluations, and making recommendations to the decisionmaker/budget holder in your company. This can be a timeconsuming task and shouldn’t be underestimated. The team at Nomos has created a software selection guide to help you through this process. You can download it here.
Signing the contract
Signing the contract should be simple, but getting legal documents reviewed and approved by legal teams and other interested stakeholders and then signed takes time and needs to be factored into your project plan. Unfortunately, contracts often end up sitting on the desks of senior managers amongst other urgent documentation. If this happens it will delay onboarding and may mean you don’t make your project deadlines.
Onboarding leases into the software
Onboarding is the process of loading all of your documentation and data into your chosen software, (reviewing it) and then setting up your account with relevant, useful naming conventions and labels. Onboarding often turns up gaps or inconsistencies in your documentation or data. How long it takes depends on how many leases you have, the time you’ve previously put into an audit of your documentation, how you want to set your portfolios up, and how many resources you have to invest in the process. One option is getting a professional team involved to onboard your documentation for you. Software providers offering onboarding services should be given weight when choosing a provider. They know their own system inside and out and can load data accurately and efficiently. The information will still require a review, so don’t omit this from your project plan. Read more about what onboarding involves here.
Training software users
As is often the case with software, if left to their own devices, some companies or individual users will only learn how to use it at a very high-level. If they’re not confident in the software, they might avoid using it, or take longer to perform simple tasks than necessary. This can happen with even the most intuitive software. Another factor to consider is change adverse teams or individuals who are reluctant to lose sole control of their part of the process or to give up their old, manual processes. Investing time in training is essential if you want to get the most value for money and to ensure everyone buys into the new way of managing leases to support IFRS 16 compliance.
The team at Nomos One are experts at lease management, onboarding and training, and can help ensure you get the very best out of our software to help you achieve IFRS 16 compliance. We’ve made our IFRS 16 experts available to discuss your requirements, the services we offer and to give you a personalised demo of the software.