IFRS 16 Reporting
5th January, 2019
The Devil is in the Data
If you are reading this then you are probably aware of the new Lease Accounting Standard which came into effect on the 1st January 2019.
Before I share my experiences to date I should probably qualify my experience – I have been working on several implementation projects over the last 6 months from huge global organisations to UK based companies that have a significant number of leases.
The one thing that is common across all customers and the primary challenge is data:
1. Get the data
How many leases do we have?
What lease information is required?
Where is it held and how can we access it?
All leases or just operating leases?
Important questions to get started for any IFRS 16 project. Most organisations have already shared excel templates to their business units / manufacturing sites / regions to collect the lease data so that they can get a true picture of the total number and value of operating leases in their organisations.
A key point here is that, as well as satisfying basic lease information for the IFRS 16 calculation, organisations should focus on what is required from a reporting context both statutory and in terms of lease management. The end point will probably be journal postings into your ERP systems and this may include your own specific fields of analysis…and this even may require some form of allocation to split basic IFRS 16 postings in line with your standard reporting basis – best to consider this early when you are asking for lease information.
2. Understand the impact
Once the lease information is captured – you want to find out the impact of different options:
• Transition methods and dates
• Exemption thresh-holds
• Interest rates
• Lease grouping or individual lease basis
I have worked with customers to get to this point quickly. This is the first real milestone in the project that gives a tangible view of outputs. It helps to have a tool that facilitates getting the data in and allows simulation of options.
3. Implementing an ongoing process
Once we have the initial data for transition, we have assessed and looked at the impact of different options, we then have to set up an operating process for business as usual.
It goes without saying, the more we can automate the better, the more control and transparency we have the better…and where we need to manually manage lease information this should be as user friendly and “usable” as possible. In my opinion, this is a critical success criteria – you don’t have an existing process in place and so you need to define a new operating process and do your best to ensure it is as robust and efficient as possible…
4. Budgeting and forecasting
Those organisations whose KPIs are sensitive to changes in the new standard, are looking to integrate the IFRS 16 tool with their budgeting and forecasting processes.
So you should consider how and at what level you will need the ability to feed your plans with the very- much-forward-looking information that outputs from your IFRS 16 calculation tool.
There are a number of tools to choose from.
Some are lease management tools that have been adapted to create an IFRS 16 output. These tend to be strong on lease management but less effective on integrating with your reporting and managing information and processes from a finance perspective.
I have been working with the CCH Tagetik solution for IFRS 16 which is a financial and regulatory reporting tool that has been adapted for lease management. The benefit of coming from this angle is that CCH Tagetik provides a good level of functionality from a finance perspective (automation of data; controls and validations; auditability of lease and finance balance level information; workflow and process management; simulation of P&L / BS impact) whilst still providing the Lease management capability and off course the IFRS 16 output.
Of course we need to look at each specific customer requirement to select the most appropriate tool. Being from a finance background and having worked in statutory and management reporting, I find Tagetik easier to work with on IFRS 16 projects and my customers in Finance are more at home with a finance tool that delivers their IFRS 16 requirements.
Talk to us about your CCH Tagetik solution and IFRS 16 project.