IFRS 16 requirements for lease accounting go into effect on January 1, 2019 – little more than half a year away from today. Any company with leases or subleases with terms of 12 months or longer, unless the underlying asset is of low value, is affected. While it may seem like plenty of time to prepare for the new accounting standards, time is actually running short.
We are definitely seeing a tendency to vastly underestimate the amount of preparation work needed for compliance. Based on our experiences we are strongly advising the companies we speak with to start preparation now.
Following are some of the challenges we’ve observed and can help to resolve with the implementation of CCH Tagetik’s Lease Accounting Solution:
1. Many finance teams do not have a clear idea about the number of lease and service agreements that exist
…since most companies do not have a central repository for storing and tracking such agreements. When this is the case, lease agreements have to be tracked down, department by department, business unit by business unit. We find it is very common for finance teams to discover many leasing and service agreements that were not known to them. The number of contracts can impact not only the solution requirements but also the time needed for the implementation.
2. Most likely, lease-related information must be pulled from multiple source systems.
The amount and type of information available usually varies widely. Key information may be missing for some leases, adding more detective work. This can have an impact on the implementation time plan.
3. Each lease must be verified, evaluated, and documented.
For those companies with many leases, this can represent weeks of work added to the already heavy workload of most finance teams. Finance will most likely need to work side by side with the business to make the right decisions about some of the different leases. Make sure the organisation is prepared with proper training and that support is provided.
4. Consideration must be given to how lease data is stored and continually managed and maintained.
Lease-related processes may require changes, since lease data must be current and consistent at all times – the process must support this.
We find that when finance teams recognise the amount of preparation that must be done in advance of implementing a technical solution for IFRS 16, their solution requirements often change. They realise that in addition to the calculation and reporting functionality needed for technical compliance, they also need a centralised repository for storing and managing changes in lease data affecting the calculations for the adjustments, automatic integration with multiple source systems, modelling capabilities to assess and predict impact on financial statements and workflow management & tracking capabilities.
There are a number of decisions to be made and practical challenges that you will most likely face – but with CCH Tagetik‘s Lease Accounting Solution in place and a process supporting your organisation in the continuous work you will be in a good position at the beginning of 2019. The clock is ticking and it’s time to take action!
If your company will be affected by IFRS 16 and you’re still determining how best to approach this new standard, we invite you to contact inlumi.
If you want to learn more about what CCH Tagetik’s Lease Accounting Solution can do for you, watch our webinar: