8 critical, non-financial IFRS 16 tasks for finance teams

8 critical, non-financial IFRS 16 tasks for finance teams

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.

Stakeholder consultation

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.

 

5 things you’ll love about lease accounting software

5 things you’ll love about lease accounting software

The new International Financial Reporting Standard on leasing (IFRS 16) is effective for accounting periods beginning on or after 1 January 2019.

This will have a significant impact on lessees, especially those with 50 or more leases operating in the transportation, infrastructure, retail, mining, telecommunications, retail, hospitality, education, corporate and government sectors.

Many companies significantly underestimate how complex the transition and ongoing reporting requirements are. For finance teams, month and year-end are already daunting enough – but now they’re about to become more difficult and time-consuming.

That’s why the Big 4 accounting firms are recommending lessees invest in IFRS 16 compliant lease accounting software. Despite mounting complexity, some finance teams are reluctant to look at software options. We’re going to share five things – well actually eight things – they will love about IFRS 16 compliant lease accounting software. Trust us, there are more than eight things, but we’ve selected some that will resonate with anyone tackling IFRS 16.

5 things you’ll love about Nomos One lease accounting software

1. You’ll never do manual debits and credits for lease accounting again.

2. You’ll have a clear audit trail making audit time straightforward.

3. IFRS 16 calculations and formula are taken care of for you – and you can’t break them!

4. You’ll be able to produce journals, draft balance sheets, depreciation and interest schedules at the press of a button.

5. All of the data you need (and the supporting documentation) will be held in one shared repository.

We’ve thrown in three more for good measure.

6. Cloud-based software means you’ll be able to access your account anytime, anywhere.

7. Lease event reminders mean you’ll never miss a lease event again –  greatly reducing the risk of missed or inaccurate payments and even breaches of contract.

8. You can finally say goodbye to the duplicate, inaccurate and missing data that plagues homegrown and multi-software systems.

We have no doubt many, if not all of the above, will appeal to you if you have anything to do with IFRS 16 compliance.

Want to find out more? Check out more lease accounting features or better yet, schedule a personalised demo with one of our IFRS 16 experts.

Navigating IFRS 16 implementation in 2019

Navigating IFRS 16 implementation in 2019

IFRS 16 will significantly impact lessees in 2019

The International Accounting Standards Board (IASB) estimates that more than US $2 trillion in leased assets were left off the balance sheet of listed companies applying International Financial Reporting Standards (IFRS) or US Generally Accepted Accounting Principles (GAAP).

The new international financial reporting standard on leasing, IFRS 16 – effective for accounting periods beginning on or after 1 January 2019 – brings previously off-balance sheet arrangements onto the balance sheet. This standard fundamentally changes the way lessees account for leases by eliminating the dual model which previously classified leases as operating or finance. This means, with the exception of low-level and short-term leases, all right-of-use and lease liabilities must be recognised on the balance sheet.

Companies operating in the transportation, infrastructure, telecommunications, mining, retail, hospitality, education, corporate and government sectors – to name a few – are generally prolific lessees. A typical company operating in any one of the above industries leases between 50 to 5000 (or even up to 10,000) assets of various types, ranging from property, office space, printers and office equipment to outlet stores, medical centres, fleets of vehicles, machinery, electrical junctions, fibre optic cables and transponders. the list goes on.

Many companies significantly underestimate the size and complexity of their lease portfolios. This is because their assets are often spread across multiple office locations, warehouses and factories are managed by teams ranging from legal, property, and business support to IT, finance or operations – all of which have traditionally taken a soiled approach to lease strategy and management. It’s also likely there are leases embedded in contacts that at first glance, seem unrelated to leasing, for example, mobile phone contracts.

Reporting under IFRS 16 is exceptionally complex

For many finance teams, month end is already a daunting process that is hindered by missing, inaccurate or duplicate lease data. On top of that, IFRS 16 requires companies to change how they account for leasing – resulting in complex calculations to recognise the right-of-use (ROU) asset and lease liability. It also means there will be a gross-up of the balance sheet which is likely to impact many companies’ financial statements and financial performance ratios.

Before finance teams can start reporting under the new standard, they must find and analyse all their leases, select a transition method and practical expedients that will best meet the needs of their company, and work through the transition process. IFRS 16 is extremely complex and to implement if effectively finance teams must make a number of assumptions and use considerable judgment. Their choice of transition methods will also impact the level of effort requirement. Calculations are complex at commencement but also throughout the entire life of each lease.

A blueprint to  navigate implementation – IFRS 16 resources

The Institute of Chartered Accountants Australia and New Zealand has developed a detailed blueprint that outlines the requirements of the standard for those still struggling with implementation. You can access it here.

The team at Nomos One has developed an IFRS 16 transition checklist and  14 critical milestones printable to help you plan/prioritise your entire implementation project from finding and assessing leases, understanding the standard, and stakeholder analysis right through to selecting a software provider and signing the contract. We also have a number of other helpful IFRS 16 resources such as choosing a transition method and selecting a software provider. See a full collection of our resources and blogs here.

Spreadsheets are not the solution

Despite mounting complexity, some companies plan to use spreadsheets to manage both the transition and ongoing reporting requirements. Big Four accounting firms warn that for companies with 50 or more leases, spreadsheets are unlikely to support compliance. Nor will they do finance teams any favours come audit time.

Making changes to complicated formula can introduce a multitude of unnoticed errors. When even on simple spreadsheet error can dramatically alter a company’s financial position, automation should be seriously considered. Lessees operating in this new landscape require fit-for-purpose software that will give them confidence in their IFRS 16 compliance and transform the management of their lease portfolios.

Enter Nomos One

Nomos One has taken a revolutionary approach to automating lease accounting that means finance teams never have to do credits or debits for lease accounting again.

The software automatically calculates the present value of the future minimum lease payments (PVFMLP) and includes everything finance teams need for subsequent remeasurement. Reporting is completely covered, with IFRS 16 journals (monthly, weekly, annual or customisable, eg, 4-4-5 reporting), draft balance sheets, end-to-end historic and forecast reports, depreciation and interest schedules and more. Nomos One also supports all three IFRS 16 transition approaches and generates reports that compare financial impacts under all transition methods. Complete with a unique IFRS 16 wizard that walks users through IFR S16 compliance, Nomos One helps ensure nothing is overlooked.

The all-in-one lease management and lease accounting software, with document repository, full portfolio view, and lease event reminders,  provides an opportunity to transform the management of entire lease portfolios, creating efficiencies and reducing risk across companies.

Read more about Nomos One’s end-to-end features here, or schedule a personalised demo with one of our IFRS 16 experts.

 

 

IFRS 16 Leases: Compliance burden or business opportunity

IFRS 16 Leases: Compliance burden or business opportunity

IFRS 16 Leases: Compliance burden or business opportunity

IFRS 16 Leases is a complex standard that brings with it numerous challenges – we’ve outlined many of them in our earlier blogs and resources, and given you tips on how to overcome them.

It’s unsurprising that many organisations view IFRS 16 purely as a compliance burden; both in terms of the implementation itself, and the ongoing reporting requirements.

The team at Nomos One challenge you to turn that thinking on its head and to take advantage of the opportunity IFRS 16 presents to transform the management of your lease portfolio, creating efficiencies and reducing risk across your company.

IFRS 16 Opportunity 1: Centralise the storage of your leases

As part of your implementation project, you will (hopefully) have located, reviewed and extracted the relevant data from all of your leases (and contracts that contain embedded leases).

Based on our experience, it’s likely this information was held by a range of teams across your company and that you were faced with inconsistencies in the data including duplicate, inaccurate or missing data.

IFRS 16 presents you with an opportunity to remedy any data integrity issues and then store all of the relevant documentation in one central document repository.

Good, end-to-end lease management and lease accounting software like Nomos One comes with unlimited storage, making it a global source of truth for every team involved in the life-cycle of a lease.

IFRS 16 Opportunity 2: Centralise the management of your leases

Once you’ve onboarded all of your lease information (and any other contracts and agreements you would like to store in Nomos One – it’s also perfect for licences, sub-licences, franchise agreements, easements, grants, resource consents and more) teams that previously operated as silos will be able to collaborate and share reports instantly.

Nomos One allows you to add an unlimited number of users with varying permission settings and access levels.  All users will benefit from a clear, simple dashboard summarising your portfolio at a glance, automated event reminders, and bespoke reports and graphs – and your finance team will have access to relevant data without having to actively look for it (and then validate it). You’ll even be able to give your auditor access.

All of your lease administration and lease accounting requirements, whether it’s for properties, office equipment, IT equipment, fleets of vehicles, machinery or other leased assets, can be managed from one, central location, improving the integrity of your data and ensuring a collaborative approach  – and because Nomos One is cloud-based software, you can access your portfolio anytime, anywhere.

IFRS 16 Opportunity 3: Reduce payment errors

With so many teams involved with leasing, including finance, legal, property, IT, fleet management and business support, it’s inevitable data will diverge leaving you without an accurate record of payment rates and dates. 

Manual systems make it especially easy to miss renewals, variations, CPI rent reviews and expiry dates resulting in both over and underpayments. Some companies even discover they are paying rent on properties they no longer lease.

A fit-for-purpose lease management and lease accounting solution will help to ensure you never miss another lease event again.

IFRS 16 Opportunity 4: Transform the management of your lease portfolio

We recommend you widen the scope of your IFRS 16 implementation project to include the requirements of other lease management stakeholders and that you select a software provider that can deliver efficiencies, cost savings and reduce risk across your company.

Intuitive lease management and lease accounting software will help ensure you keep your portfolio up-to-date and legally sound, and will transform the way your company manages its lease portfolio – freeing up staff from manual, repetitive and time-consuming tasks and allowing them to focus on high-value and business-critical tasks.

These tangible, business-wide benefits, will  give more weight to your business case for IFRS 16 compliant software if you put forward the right solution.

Check out Nomos One’s free guide on selecting a lease accounting and lease management software provider and our recent blog on the 7 critical questions you must ask providers. You can check out Nomos One’s lease management, lease accounting or contract management features here or better yet – schedule a personalised demo with one of our IFRS 16 experts.

 

 

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5 things early adopters say about IFRS 16 implementation

5 things early adopters say about IFRS 16 implementation

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
  • Assumptions
    • Renewals
    • Purchase options
    • Residual value guarantee
    • Classes of assets
  • Practical expedients
  • Subsequent measurement
  • Disclosures

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.

7 critical questions for lease management and lease accounting software providers

7 critical questions for lease management and lease accounting software providers

Lease management and lease accounting software selection guide

Nomos One IFRS 16 resources

End-to-end lease management and lease accounting software will give you confidence that you’re meeting your obligations, free up staff from manual, repetitive and time-consuming tasks, and create efficiencies for everyone involved in lease management and lease accounting across your organisation.

If you choose the right solution you should see an almost immediate return on investment.

Choosing the right solution

With a range of providers in the market, each showcasing different features, it can be difficult to compare solutions like-for-like.

On the surface, software solutions may seem comparable, but by digging a little deeper you’ll be able to identify a solution that will give you confidence in your compliance and provide the best value for your organisation.

Seven questions you must ask providers before choosing software

Is the lease accounting component truly IFRS 16 compliant?

It’s imperative any solution you adopt is compliant with IFRS 16 – many claim to be. Our advice is to make sure the claims stack up.

Some of the solutions on the market are compliant when it comes to basic leases, but not complex ones.

Make sure the solution you select has been tested against a wide range of scenarios provided by global accounting firms.

You should also ask if the solution includes provisions for breakout non-lease components, variable lease payments capture, sale and leaseback arrangements, sub-leased agreements that are classified as finance leases, and business combinations.

Does the company employ chartered and certified accountants who understand IFRS 16 and its requirements?

IFRS 16 is a particularly complex standard and getting it wrong will impact your company’s financial statements and financial performance.

No matter how diligent or thorough they are, if the provider doesn’t employ professional accountants who live and breathe IFRS 16, they won’t fully understand your requirements. It also means their developers won’t have access to in-house experts who understand how you need the software to work from a usability perspective.

Is the product flexible and customisable?

Every organisation has different preferences for they’d like how their portfolios set up, including groupings, naming conventions and the data they would like included in reports, templates and other documentation.

It can be confusing for users and stakeholders if software and reports include inaccurate fields, naming conventions and irrelevant data.

Make sure the solution you adopt includes unlimited custom fields and reports, and that you can choose how to set up your portfolio.

Can you add an unlimited number of users (for free)?

Lease management affects more than just one team. Stakeholders can include property management, fleet management, legal teams, finance teams, business support, office managers and IT teams, as well as external stakeholders like auditors.

Having all relevant documentation and data stored in one place ensures your organisation has a single-source of truth when it comes to leases. An end-to-end solution creates efficiencies across teams as well as within them, so it’s important that all relevant stakeholders have access.

A good provider will allow you to add unlimited users with a range of access and permissions at no extra charge. Be wary of hidden costs associated with adding users including for additional licenses, training and support.

Is the software intuitive and easy-to-use?

For your organisation to realise all of the benefits of an end-to-end lease management and lease accounting solution your team actually needs to use it.

You can have the best functionality in the world, but if the interface is complex, or off-putting in any way, your team will avoid it.

Does the company offer onboarding services, training and support?

Having your data and documentation onboarded by a team of professionals takes a huge amount of pressure off your team and ensures that any gaps or inconsistencies in your information are identified and resolved.

In our experience, having a team of experts review your information can pick up issues that, if missed, could cost your organisation a significant sum.

Like any software, to get the most out of it, your team needs to feel confident and supported when using it. Make sure the provider you select has a dedicated training programme and offers ongoing support. Again, look into any hidden costs that might be incurred for additional training or support.

For more advice on software selection and what to include in your request for proposals, download Nomos One’s software selection guide here.

Read more about Nomos One and review the product features here.

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