IFRS 16 is here. And there’s some good news for SAP customers

  • The new accounting standard IFRS 16 Leases comes into effect on 1 January 2019 for any fiscal year beginning in the 2019 calendar year.

  • The introduction of the new standard is expected to have a significant impact on companies with large lease portfolios. This due to the amount of data that needs to be collected.

  • SAP has an integrated solution developed specifically to help you be IFRS 16 compliant – and Bluleader can help make the transition smooth and seamless.

As you’re no doubt aware, IFRS 16 Leases – and its Australian equivalent, AASB 16 – is here and comes into effect on 1 January 2019. Some companies are on top of it. – others are aware but unsure of their obligations. Many are understandably overwhelmed by what looks to be a complex new accounting standard.

The good news is that if you are already an SAP customer the solution is going to be much easier than you think. Here, we outline the changes for you and also give an overview of an SAP solution that’s been specifically developed to help you meet the requirements of the standard seamlessly and from within your existing environment.

What IFRS 16 means for your business

Your existing contracts will need to examined to determine whether they contain a lease or not. Business processes and technology tools for lease accounting will need to be updated.

Some background: prior to the introduction of IFRS16, companies classified leases as either a finance or operating leases under IAS 17. However, the classification under IAS 17 was subjective and allowed companies to classify leases that where substantially finance leases as operating leases to keep the assets off Balance Sheet.

The introduction of IFRS 16 will remove these subjective assessments. From 1 January 2019, a company’s lease obligations as lessee will be brought onto the Balance Sheet, recognising a ‘right of use asset’ and the related lease liability at commencement of the lease.

Put simply, it’s about greater transparency.

IFRS 16 compliance begins with data gathering

  • Is the Contract Value > 5,000

  • Is the Contract Term great than 12 months ?

  • Is there an identified asset ?

  • Does the customer (lessee) have the right to substantially obtain all the economic benefits from the use of the asset throughout the period?

  • Does the customer (lessee) direct how and for what purpose the asset is used throughout the period of use?

If the answer is Yes to all five points above, your contract contains a lease.

The level of data gathering is likely to be time consuming, so the earlier you start the process the better. It is recommended that you manage this as a cross-functional project as the people with the insights you need are likely to be from multiple departments within your organisation, including Accounting, Legal, Operations and Facilities. It is important to note that external providers might also hold key information about potential leases.

Once you have collated this key data, you will need to store, update and manage it on an ongoing basis.

This is where the good news comes in. SAP has developed functionality to manage IFRS 16 data and processes which will be fully integrated with your existing SAP Finance and Fixed Assets functionality

How the SAP IFRS16 Solution helps you manage this transition

If you haven’t already discovered or guessed, old school spreadsheet processes won’t cut it when it comes to handling this change. They are simply inadequate when managing the huge amounts of information, calculations and reporting that the new standard requires.

SAP has developed an IFRS 16 solution using the Real Estate Contract in SAP Flexible Real Estate Management. Bluleader are implementing the solution with many companies already, and it is providing great ease and confidence when it comes to IFRS 16 compliance. More specifically, the solution:

  • Allows organisations to manage both property and non- property lease

  • Streamlines your portfolio of assets

  • Offers a centralised repository of contract data

  • Triggers financial postings derived from valuation calculation in real time to Finance and Fixed Assets

  • Enables Finance to evaluate the impact of each lease on the financial statements

  • Creates automatic ‘right of use’ asset and lease liability

  • Minimises the risk of data inaccuracy and non-compliance

Take the next step to IFRS 16 compliance

This is a brief snapshot of IFRS 16, its impact on your business and how to get started with compliance.

If you’d like more information please get in touch with us or take our 3 minute assessment to understand your level of readiness and the likely effort required to make the transition towards IFRS 16 compliance.