IFRS 16, Leases, has resulted in increasingly complex lease accounting. Adopting this new standard and maintaining compliance is a complicated process that involves new processes, policies, and systems. The easiest way to ensure your organization’s long-term compliance is to make sure you’re using the right lease accounting software.
The compliance deadline for both public and private businesses reporting under the new standard was January 1, 2019, but if recent research is any indication, many companies are still lagging behind in their transition.
Some of those delays may have been caused by the lease software that these organizations chose to use during their transitions. Whether you’re relying on Excel, chose a software vendor that didn’t deliver on what they promised, or used a system that only got you through the initial transition, you need a solution that will help you stay compliant for the long term.
Key features to look for in IFRS 16 software solutions
The system you choose should come with all the features you need for compliance out of the box. There are many companies that are offering lease accounting software, but their basic packages only get you part of the way toward compliance.
For long-term compliance, you need to implement a system that meets the following requirements:
Complete IFRS 16 disclosure requirements
IFRS 16 calls for significant changes to disclosures than were previously required. Some of the changes include additions to right-of-use (ROU) assets, total cash outflow of leases, and interest expense on lease liabilities. A solid IFRS 16 compliance solution should be configured to provide the reports you need to meet those requirements with ease.
KPMG offers an in-depth guide on IFRS 16 disclosures. Read it here.
Full support for your internal controls
Bringing the majority of your leases onto the balance sheet puts the spotlight on your controls around lease accounting. It’s important that you choose software that supports your internal controls.
Features such as data entry validation (where one person enters a lease and another has to approve the new information) and role-based access (which allows you to control how much access users have) prevent inaccurate information from being introduced into the system.
To save you time and ensure your accuracy, your lease accounting software should be built with the complexities of IFRS 16 in mind. Practical expedient elections, borrowing rate charts, and useful life charts are just a few of the data intelligence features that you’ll need.
A cloud-based SaaS (software as a service) system
One major benefit of using a cloud-based SaaS tool for IFRS 16 lease accounting is that your entire database of leases can be found in one centralized location and is available to users at almost any time. Your accounting department can access the lease documents they need from anywhere as long as there’s an internet connection.
Additionally, you can give appropriate levels of access to users who work in other departments that deal with leases, such as Real Estate and IT. They can then easily get the documents that they need without compromising your data security. Imagine how much time that will save when compared to searching through folders on a server or hard copy files in a filing cabinet. The same applies to your auditors, who can be given read-only access to the system.
Automated critical alerts
How many times has your department been notified that you missed a payment for a lease? Or have you ever found out that you overpaid on a lease because you weren’t notified of a rent abatement?
What if you had a tool that sent automated alerts to prevent you from encountering those issues? A robust IFRS 16 tool can send you alerts via email when an important date is coming up.
For a more comprehensive listing of the features needed for compliance, download our comparison guide:
What to look for in an IFRS 16 software provider
It goes without saying, but the vendor you choose for IFRS 16 should offer you upfront assurances that they’re well-versed in the standard. While IFRS 16 is aligned with ASC 842 in many ways, there are some key differences.
Your software provider should have in-house accountants who have a deep understanding of the nuances of IFRS 16. For example, IFRS 16 requires lessees to remeasure their lease liabilities and right-of-use assets any time that there is a change in future lease payments. This applies to any leases with payments that are tied to an index – if there is a change in the index, then you must recalculate the lease liability. The system you choose should automatically perform this function.
To learn more about the major differences between IFRS 16 and ASC 842, read our blog, IFRS 16 vs. US GAAP Lease Accounting: What Are the Differences?
Additionally, be wary of any signs of unusually high difficultly in using the system, such as user reviews that mention a very difficult implementation process. It’s important that a lease accounting system makes your job easier and you shouldn’t have to be an expert in lease accounting in order to use the system properly.
Finally, make sure to read reviews of lease accounting software carefully during your software selection process, taking the reviewer’s job function into account in addition to the content of the review. If the reviewer is in accounting, then their perspective on the system’s accounting functionality is much more valuable.