Consistently meeting the ongoing compliance requirements of the new lease accounting standard, IFRS 16, is no mean feat. The extra resources that finance leaders had at their disposal to meet the 1 January 2019 deadline have now faded away and senior stakeholders are expecting nothing short of a miracle from understaffed accounting teams. Could Lease-Accounting-as-a-Service be a cost-effective and time-efficient solution to these challenges?
Bringing nearly all leases on to the balance sheet for the first time, the legwork associated with IFRS 16 transition, or ‘Day 1 compliance’, has been widely reported. There has been less focus, however, on meeting the ongoing burden of ‘Day 2 compliance’ – and many finance teams across Europe, the Middle East and Africa (EMEA) are struggling to accurately record all of their lease transactions.
Aside from the sheer complexity of the conceptual frameworks within IFRS 16, the new standard brings with it greater focus on asset level accounting. This means that even modest lease portfolios can result in a significant workload for finance teams. It’s no longer acceptable to have a high-level overview of the company’s leases, granular detail is required over each asset in order to perform robust analysis of the lease portfolio.
Furthermore, the new standard requires frequent reviews of individual leases, and often, re-measurement. Since IFRS 16 is a principles-based standard that allows for interpretation, re-measurement can lead to inconsistencies unless a rules-based workflow is in place. In addition, different events across the lifecycle of a lease can trigger yet more accounting entries – again, at an asset – rather than lease-level (see fig. 1).