When Victor Pineiro presented at the “IFRS 16 – Application in Practice” conference in London recently he shared the 5 most common mistakes that we at Nomos One see while helping companies around the globe with their transition to IFRS 16.

The companies range from leasing corporate office space and retail stores, through to vehicles, aircraft, infrastructure and manufacturing equipment.

When we say the 5 most common mistakes – we really mean common. In fact, about 90% of the companies we talk with are making at least 3 of the big 5 mistakes.

The good news is that others (hopefully you) can learn from the mistakes of others. And if you do, you’ll find your stress levels going down, as well as your time and costs to implement and comply with the new standard.

So, here are our favourite IFRS 16 transition tips to make your transition to IFRS 16 as quick and painless as possible:

Tip #1: Transition is not a quick process, so don’t leave it to the last minute

The technical aspects of the standard itself aren’t all that complex, and this is lulling many into a false sense of security that the transition isn’t a big deal and can wait. You know what we mean by wait – wait until after year end, until IFRS 15 is sorted, or until everything else that you have on your plate is taken care of.

In other words, there’s a tendency to wait until IFRS 16 becomes urgent and there’s real pressure to make fast decisions, which will quite possibly come back to bite you later.

The reality is that IFRS 16 implementation is messy and time consuming, and that this standard will directly impact the financial performance and value of the company – not just the reporting and compliance.

Why is IFRS 16 transition likely to be time consuming and messy?

  • The changes you will make as a result of the transition to IFRS 16 will impact stakeholders right across the organisation, so they should be engaged and consulted as part of the process. This alone can be very time consuming.
  • Gathering all your relevant lease data and documentation including all of your variations and changes to leases will take at least double the time you anticipate. In every company we work with there are missing, incomplete or inaccurate documents; and in excess of 50% of the spreadsheets we see don’t match up with the reality (your spreadsheet may well be a masterpiece – but the chances that it’s 100% accurate are slim).
  • Choosing, onboarding, and rolling out an IFRS 16 compliant technological solution is an inevitability, and will also take time.
    In short – allow at least 6 months for this process to really take shape, and up to 3 years to bed down.

Tip #2: Engage key stakeholders early in the process

This flows on from our first transition tip, but deserves mention in its own right. Likely stakeholders beyond finance and accounting include but are not limited to property, legal, procurement, risk, and IT.

Yes, IT. The reason we include IT is that if you have more than about 30-50 leases in your portfolio you WILL need to adopt and implement some IFRS 16 compliant software. A spreadsheet simply will not be adequate even if you have a spreadsheeting ninja on your team.

A really good way to identify who those stakeholders might be is to map out an end-toend process tracking what happens and who in your organisation is involved from the moment a lease is being considered or negotiated, until the end of days. We recommend you do this for both your pre IFRS 16 process, and post IFRS 16 process.

By understanding the needs of all your stakeholders you will be well positioned to adopt a process and technological solution that is fit for your purpose. It will help you identify the features you need, and the features that you don’t need. You may think you need full ledger integration, but maybe you don’t. You may think you only need an accounting system, but maybe you need lease management functionality as well.

Other parts of the organisation may need or benefit from reports and functions that simply aren’t in your vocabulary or line of sight. As an example – event reminders for upcoming lease events for the property team have the potential to make or save your company a fortune.

In short – take a company wide view, and don’t just think of your own needs.

Tip #3: Engage with you auditors and advisors early

IFRS 16 requires a significant amount of judgement and estimations. Engaging with your auditors and advisors early ensures you begin with the end in mind, and will make good choices that will withstand the test of time, and help you sleep at night.

Enough said!

Tip #4: Technology alone is not the solution

Technology is an enabler, not the solution. But it is an important component. Understand the tool you’re looking at buying, and understand your needs. Is there a gap or an opportunity?

We often find that the IFRS 16 transition is an opportunity to take a look at and improve other aspects of the business. Frequently the adoption of one tool, may save you the need to use two or three others, and it can have an almost immediate positive ROI.

We’ve had clients who when they began using the combined lease management and lease accounting functionality of Nomos One have discovered land they didn’t know they had, found they were paying for one lease three times over, and another who found a break clause that saved them $6m.

And when it comes to choosing your technological solution or tool there are a few things to really check for:

  • Is it flexible and customisable? Your tool should be able to fit with your business – not the other way around.
  • Is the security top notch?
  • Could you work with these people?
  • What support and supporting services do they offer, such as training and onboarding?
  • Can all the stakeholders who need access, get access to what they need, when they need it? As an example – at Nomos One “unlimited users” is part of our standard offering with flexible and customisable viewing and editing authorities.
  • Is it intuitive and easy to use? Will your people actually want to learn and use it?
  • Is it truly IFRS 16 compliant? – not all IFRS 16 compliant claims stack up in the cold light of day.
  • Are there additional benefits beyond IFRS 16 compliance? As an example – Nomos One allows you to create, edit and share agreements; and can work as a general contract or agreement management system.
  • Will the system provide for both forecasting and disclosures?
  • Is the software developed in-house, and continually maintained and developed?

Your transition to IFRS 16 will have implications. Your decisions will impact financial performance and position; internal processes and systems; and team roles responsibilities and structures.

Our single greatest tip is to do yourself a favour and not under-estimate IFRS 16, or leave it until the last minute.

Discover how to make your transition to IFRS 16 as quick and painless as possible with the Nomos One lease management and lease accounting platform

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