Alan Gregory
4 minutes length
Posted: 24th August 2017

How Globalisation Is Impacting Lease Accounting Compliance

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Directors and Heads of Finance departments at multi-national companies are facing one of the trickiest undertakings to achieve new lease accounting compliance when compared to domestic businesses.

Lease data and knowledge being spread around different sites across the country is a large enough headache, but being a business which operates globally is a whole other issue. The time for ensuring compliance is already here or you now need to start fast-tracking a resolution. To delay compliance runs the risk of failing to meet the new standards and missing out on financial opportunities.


Why Lease Accounting Compliance Is Now An Issue

Current IASB lease accounting standards, IAS 17, are being overhauled and replaced in what is considered the biggest change to lease accounting in 30 years. The new standards are named IFRS 16 and the changeover will come into full effect on 1st January 2019.

The knock-on effect of the explosive growth of the leasing industry across all sectors of business, t is enormous.

The change itself, in a nutshell, will see the definition of what constitutes a lease being changed and all leases will now have to appear on balance sheets. This affects around 1 in 2 listed companies and also has an effect on key financial reports such as: gearing and current ratios, asset turnover, interest cover, operating profit, and many more.

The definition change may result in agreements formerly known as leases being defined as services, and vice versa, which means there is a huge undertaking to be completed before you can start thinking about accounting decisions.

Before doing anything else, your multi-national company needs to collate all the lease portfolio information, agreements and associated data and perform a thorough assessment of the information.

 

Why Lease Accounting Data Is Such A Problem For Global Corporates

In order to produce the required financial reports under the new IFRS 16 lease accounting standard, your business will first of all need to assess all existing lease agreements. This assessment needs to be done to see which agreements are now services and which are still leases, as well as assessing which possible exemptions should be applied to those leases that are eligible.

But all of this change relies on locating, gathering and collating all the necessary information in the first instance. Without gathering the right data, your assessment will be incomplete and possibly ineffective. It could also result in being noncompliant with IFRS 16.

Then, going forward into 2019 and beyond, your business will need to have the means of keeping a full and proper handle on your lease portfolio data at all times. This requirement means all new lease agreements will have to be stored in a readily-accessible way and added to a central database.

When you have sites or points of contact around the globe, choosing the right means of executing this task is vital and an audit trail will prove essential.

 

How To Manage Worldwide Lease Accounting Data Collation

Many businesses have tried to use Excel-type spreadsheet programmes which are saved onto a central server. There are two huge pitfalls to this method of collating, managing and analysing your lease data.

First, working that way means spreadsheets have to be downloaded, worked on and uploaded back onto the central server. This back-and-forth massively increases the chance of duplicate sheets being created and superseded documents being worked on. There’s also a heightened chance of accidental deletion and having to spend time recovering the file.

The first problem can be overcome by using live spreadsheet tools, such as Google Sheets, where users from multiple locations can work on the same spreadsheet at the same time. But even these live documents do not fix the second pitfall of using spreadsheets: their format is not suitable for lease accounting data collation.

Whilst spreadsheets are a fantastic invention which can be used for many, many complex needs, they are not perfectly and solely designed for lease accounting purposes.

Given the magnitude of upcoming lease accounting changes, software which addresses these changes has now been developed which allows you to easily and quickly collate and manage all of your lease accounting data.

A digital lease accounting tool allows multiple users at once to access a cloud-based storage database and work on single, live files. All changes and amendments are live and made on the cloud, so there’s no risk whatsoever of duplication or using out-of-date information.

Amongst other benefits, all of the information is backed up and secure, meaning no loss of data through operator error or server outage.

But the biggest benefit to using a dedicated piece of lease accounting software is the other financial solutions. The suppliers of LOIS, for example, can run automated reports and let you formulate your own. The software can also assess your lease performance against other similar agreements between third parties like yourself and signal where you should be able to negotiate an improved lease terms.

Other automation features make managing your lease agreements easy and make analysing them to improve your financial reporting a simpler task than when using spreadsheets.

Before going ahead and checking out different lease accounting software tools, read more about achieving lease accounting compliance by following the below link: it will help you understand the true demand of achieving and maintaining compliance in your globalised operation.

 

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