It’s just over a year until the new leases standard comes into effect. The IFRS 16 (International Financial Reporting Standard) hits accounting departments on 1st January 2019, giving a mere 12 months to get everything into order and ensure that you have the correct human resources in place to manage and maintain the standard to a compliant level.
The changes will be vast, and industry experts like PwC and Deloitte are advising companies to start sooner rather than later. This IFRS 16 guide will help you outline a process and will reveal the most essential accounting and banking roles needed to implement and sustain the new standard.
What is IFRS 16?
IFRS 16 is a new standard on lease accounting issued by the International Accounting Standards Board (IASB) in January 2016. The new standard requires businesses to include all leases on their balance sheets, including equipment, vehicles, and commercial/retail properties. Operating leases previously listed as an “in-year” expense should also be included in this new standard.
According to the IASB, the purpose of IFRS 16 is to represent lease transactions more accurately and to give assessors the ability to dispel the uncertainty which arises from the cash flow associated with leases.
The new standard is predicted to increase comparability and will affect stakeholder perceptions, credit ratings and borrowing. It will completely change the financial metrics your business uses, especially for businesses which hold larger portfolios of short lease-hold properties.
Preparing for IFRS 16
Businesses are being recommended to begin preparing for the change now, so that any hitches can be ironed out before January 1st, 2019. The recommended process for IFRS 16 preparation has four stages:
1. Gather of all signed company leases
You’ll be required to account for assets and liabilities on leases with a term of more than 12 months—this excludes low-value assets.
2. Perform an audit of all leases
Once all the leases are pulled together, take stock of what you have, and any leases you hope to sign or acquire in the future.
3. Identify reporting inconsistencies by performing a gap analysis
To ensure that your leases have all been reported on in the same way, you should perform a gap analysis to weed out any inconsistencies.
4. Change all financial reporting
All accounts and profiles will need to change to support the new standard. Future leases may need renegotiating or restructuring and all structures within the business which relate to leases may also need to be assessed for potential changes.
Essential accounting and finance roles for IRFS16
To be able to comply with IRFS 16, you may find that you need to bring in interim or temporary professionals to help support and train your existing accounts team. You may also want to invest in bringing a permanent professional into the business to fill the role and service a long-term need.
Here are the essential roles that successful IRFS 16 roll-out depends on:
The second stage of implementing IFRS 16 is incredibly audit-heavy and will require an expert hand, especially in the gathering and checking of company leases.
• Technical Accountant
Expert insight is invaluable for a process reshuffle like IRFS 16. Technical accountants offer companies the level of in-depth knowledge and extra resource they’ll need to complete and maintain the new framework.
• Project Manager
The scale of an IFRS 16 audit and roll-out is huge. You may well find that project co-ordination and organisation is much smoother with the involvement of a dedicated project manager, be they permanent or interim.
• Business Analyst
Businesses will need to use skilled analysts to keep a close eye on the possible impact of the new standard on future business deals. It’s also possible that IFRS 16 will present new opportunities that can be leveraged.
• Systems Accountants
Systems accountants are highly specialised at designing, implementing and maintaining new accounting systems within a business—skills which will be invaluable to any business looking to successfully roll out the new standard and remain compliant.