Updated: Feb 14, 2019
The new IFRS 16 Lease Accounting Standards are finally coming to effect from annual reporting periods commencing on or after 1 Jan 2019. The new standards have a significant impact on company financials and have major implications for planning, budgeting, reporting etc. So, what are the implications, and how can companies prepare?
What are the major implications of the IFRS 16?
The most significant change in the IFRS16 is the change in the leases standard. Pre-IFRS1 16, most companies operated their leases separate to the balance sheet. The new accounting measures mean that companies will need to recognise most leases on the balance sheet, reflecting their liability of payments, and right to use the asset.
What does this mean?
As most companies are lessees or lessors, the new accounting measures will have a significant impact. The new standard requires companies to bring most leases on the balance sheet. Hence, companies will need to be prepared to have more visibility, accuracy, and accountability.
It also means that the changes will result in an increase in reported assets and liabilities. Various companies nowadays utilise spreadsheets to manage and report their leases. However, the oncoming changes to the new leases standard may further complicate this process. The significant increase of data and data analysis may mean that using traditional spreadsheets for financial reporting may be risk-prone, time-consuming and error-inducing.
How can companies prepare for these changes?
The accounting changes are less than two months away, and it is essential companies are prepared for the new leasing standards.
Thus, companies must be prepared to implement systematic software solutions to reduce any compliance risks that may arise, as well as allow for greater data recording , analysis and integrity.
Our software partners have developed modules to manage IFRS16.
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