The new IFRS 16 Leases standard is effective for accounting periods beginning on or after 1 January 2019. Reminders about IFRS 16 are becoming more prevalent but it’s only half way through 2018. It’s not like organisations need to be ready when the calendar flicks over from 31 December to 1 January, so you have plenty of time to prepare, right?
This kind of thinking could get you into serious trouble and it certainly won’t win any favours with the people in your team who’ll have to scramble around at what can be one of the busiest times of the year.
Nomos One has noticed a tendency for organisations to push IFRS 16 to one side until it absolutely must be addressed. This is either because they are dealing with other urgent projects like IFRS 15, or they’ve misjudged the amount of work that needs to be undertaken at each step along the path to transition. You cannot afford to underestimate how long it will take you to prepare.
The lead time to transition is much longer than you’re anticipating
Nomos One has taken the time to outline the steps you’ll need to follow to transition. This will help you to work backwards from go-live date so you know when, at the latest when you’ll need to take action.
Map out the lease process
We recommend you start out by outlining everything that happens from the moment a lease is considered until the end of days. This will help you to identify relevant stakeholders and where all of the agreements and relevant documentation might be stored.
All kinds of people might have their fingers in the lease pie –finance, procurement, property, legal and even IT. Identifying and engaging all of your stakeholders is the first step toward getting everyone on board with a process that is likely to bring about considerable change. It will help you to select a technological solution that meets everyone’s needs and to avoid unwanted surprises further down the track.
Find and compile your leases
Locating all your documents and variations will take you far longer than you’re expecting. They’re likely to be stored by many people across your organisation including people who don’t even know they have them!
Choose a software provider
There are so many factors to consider when choosing a technological solution. A couple of important ones are:
- Is the product truly IFRS compliant – Can they back up their claims?
- Is it intuitive? Will your team actually use it?
- Is the security top-notch? Your IT team will want every ‘t’ crossed and ‘i’ dotted.
- Does the company employ financial experts who can help you with your choice?
- Is it an end-to-end solution that offers other benefits outside of IFRS 16 compliance?
- Negotiate contract
If you’ve had any experience negotiating contracts, you’ll know it always takes longer than expected. A range of people have to look them over, there is lot’s of back and forth and sometimes they end up sitting on someone’s desk while more urgent matters are attended to. You should factor in at least 6 weeks for contract negotiation after you’ve selected a platform.
Choose your transition methods and make judgments about how to apply each standard
You’ll have to decide on the transition approach for each lease. Just some of the other things you’ll need to consider are:
- If you should you apply the expedient
- Business combinations
- Whether to apply exemptions
- Use of hindsight
- Whether to separate out non-lease components
- What discount rate to apply
- Assumptions on renewals
These are just a few of the long list of factors you’ll need to consider when applying the standard. Nomos One has developed a checklist that can help.
How long will onboarding take? That depends on the number and complexity of your leases and whether or not you choose to onboard them yourself or get the software provider to do it for you. You can guarantee the onboarding process will highlight areas you’ve missed and further judgements to be made.
How long will that all take?!
Nomos One strongly recommends you allow at least six months to cover off all the steps outlined above. That means you need to start preparing for IFRS 16 today.
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