How to Overcome the Roadblocks in Your Lease Accounting Implementation Project
The introduction of the IFRS 16 standard on 1st January 2019 is set to transform the way businesses prepare and use their balance sheets. Regarded by many as the “biggest accounting change ever,” there are only a few months until the standard takes effect and there are a lot of roadblocks to overcome.
Here’s a guide on how to best handle your lease accounting implementation project.
What Are The Roadblocks?
In the past, leases were used as a form of off-balance sheet asset financing, but IFRS 16 is designed to provide a more transparent means for investors to analyse a company’s health. While there are benefits to having this new standard, there are certain roadblocks you need to overcome first and these include:
- Data collation
- Identifying gaps in data
- Review internal leasing processes
One of the first things you should be doing when preparing for your lease accounting standard implementation is to identify and collate your data. This is a time-consuming task and, in most cases, it can take at least 12 months for companies to collect all of their relevant lease data. This is especially the case for larger companies because the bigger the company, the more lease data there’s likely to be and the more complex the process of collating.
Time is of the essence here, so the earlier you start locating and collecting your lease data, the sooner you can start analysing and creating impact models.
Identifying Gaps In Data
An important step in your project is to highlight any data gaps. By analysing and assessing your data, you can identify which financial metrics will be impacted by the new IFRS 16. This process should be swift yet efficient.
Because of the scope of the transition to the new lease accounting standards, it can be easy to miss important parts of data. Ensure that this doesn’t happen by having clearly defined measures of success in place and a contingency plan to ensure that your company’s leasing is sufficiently optimised.
Assess Internal Leasing Processes
Whilst analysing your lease data, you should also be reviewing your internal leasing processes and management. This highlights any potential inefficiencies and allows you to employ more effective lease management software in their place. This ensures your company is running as productively as possible and getting the most out of your leases, allowing you to save time and money in the long run.
How Can We Overcome These Roadblocks?
Get Ahead By Starting As Soon As Possible
As briefly mentioned, time is of the essence. The process of preparing for the IFRS 16 can take up to 12 months or even longer for larger companies as there may be thousands of leases. Finding and collecting all of the relevant lease documentation can be a challenging and time-consuming task, particularly if there are a lot of them and they are spread across different locations – virtually and physically.
That’s why it’s important that you start as soon as possible to avoid rushing and letting important data slip through the cracks. It’s also a good idea to have a transition timeline and action plan in place to help smoothly guide you through the change.
Have A Designated Transition Team
The new lease accounting standards are a company-wide issue but for your transition to be successful, your project team needs to involve key players. Your lease accounting implementation project should be led by a finance head, such as your CFO, and the rest of your team will consist of key members across the company.
Have Clear Goals In Place
Having an action plan and strictly adhering to it is a wise idea, but you should also have set and measurable objectives in place. Not only will this help you and your transition team to identify, analyse and manage lease data more efficiently, but it will also ensure a smooth and compliant transition to the new standard.
Review Current Leases And Reports
Once you have a long-term strategy, clear goals and a centralised management process in place and have collated all of your data, it’s time to review your current leasing projects. Conduct impact modelling and critical judgments with your auditor to understand how your business will be impacted.
This is important if your company is to have a successful transition and will also help to identify any gaps in your data which might risk noncompliance issues.
Invest In Lease Accounting Software
It’s easy to underestimate the scope of the transition to a new lease accounting standard. In most cases, it can be a costly and time-consuming task. In fact, many companies still rely on papers and spreadsheets to store their lease data which can make locating and analysing the necessary documents a lengthy process.
Lease accounting software eases the burden of the process by centralising your lease portfolio into one secure and user-friendly platform and automatically generating the necessary accounting changes. This means companies can identify the leases that will be affected more quickly and plan for the changes more easily as they don’t have to manually search through the data – the software will do just that.
For example, LOIS is a powerful piece of dedicated lease management software that has been specifically developed to work alongside the changing lease accounting landscape. The platform comes with all of the tools you might need to make your transition process more successful, such as a user dashboard to offer you a top-level overview of your lease portfolio at a glance, team collaboration tools and the ability to run reports according to various accounting standards.
Get Advice From Leasing Experts
Preparing for and implementing new accounting standards can be an overwhelming process even when you’ve adhered to all the recommended steps and use the appropriate software. There may be things you’ve missed out because you don’t have the necessary knowledge.
Outsourcing to leasing experts can help companies reduce the likelihood of errors and transition smoothly into accounting compliance.
Is Your Company Ready For IFRS 16?
Implementing new accounting standards is no easy feat. There are many things you need to know for a smooth and successful transition. Download a free copy of our 7 Step Guide to Lease Accounting Compliance to find out all you need to know about the new standard and how to prepare for it.
Disclaimer: this article contains general information about the new lease accounting standards only, and should NOT be viewed in any way as professional advice or service. The Publisher will not be responsible for any losses or damages of any kind incurred by the reader whether directly or indirectly arising from the use of the information found within this article.