IFRS16: a matter of adopting an appropriate tool!?

As we all know, as of 1st January 2019, the new leasing standard IFRS 16 is applicable for annual reporting and the companies must show the value of lease contracts on their balance sheet.  The standard will ensure that the plane you go on vacation with is recorded on the airline’s balance sheet.

At first glance, the standard does not seem to be very technical or difficult to navigate and data collection looks to be the largest area of energy expenditure.  Oh yes, of course also finding an effective tool to capture that data and cope with the required information for reporting purposes.

For these tools, there are now several providers. Excel is workable although not recommended for future controllability and maintenance.  As soon as the number of leases increases slightly, a separate tool is almost certainly necessary. Connecting to the module offered by the SAPs and Oracle is an option. Alternatively, there are also more specialized tools.

So choose, implement and upload the data, here you are!  But our experience shows us a different picture. The Suppliers are very busy and don’t appear to be readily available to promptly offer demos of their products.  However during the demo, the customer needs often appears to have not been clearly communicated and the question about the level of data storage and maintenance still needs to be addressed internally.

The most important question is, will the tool only be used as a reporting tool or will it become a full lease management tool? If the latter option is chosen, are we going to register the lease contracts or the individual assets?   In the case of lease contracts consisting of multiple assets that may be terminated/adjusted over time, this might result in additional headaches at a contract-level registration. Before you realize it, you are back to the drawing board to sketch a new feature that the tool should fulfil.

It also appears that the supplier’s support consists of technician. The latter is definitely needed to run the tool, but they will not take care of the specifications to which the tool and data must comply, even less if the available data is there and meets these specifications.

However, all too often, the customer assumes that the tool supplier is also carrying the project as a project manager, whereas this is not the case. Is this well-known?  Open doors, known pitfalls? Yes, but they are wide open and they will remain.

The data to be collected as initially perceived often appears to be more than initially available, which requires a second round. As a consequence, there is a delay in the implementation process while the start date of the standard fast approaches.

Finally, it also appears that for the implementation of IFRS 16, you need to take time for thorough preparation. Know what you want out of the tool and how it needs to be set up so that the implementation phase can take place. It most certainly should be taken as a project and for the client to name a project leader in a timely manner. Food for thought!

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