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Lease Accounting under IFRS 16

IFRS 16 Leases was published on January 13, 2016, after almost ten years of work. This standard has led to a paradigm shift in lease accounting: As of January 1, 2019, for the first time, all leases must be reported on the balance sheet. Internationally active companies face numerous changes and challenges in order to prepare themselves for the "new" lease accounting standards.

Leasing Standard IFRS 16 – Challenges

Lessees must address numerous procedural, organizational, and technical/IT challenges:

  • General accounting requirement for lease agreements with lessees
  • Extensive impact on key metrics for financial performance (e.g. strategy, planning & budget, external communication)
  • The new rules relate to various areas (finance, treasury, controlling, purchasing, investor relations) and operating units
  • Higher requirements for data collection/processing and reporting
  • Contract management (internal vs. leasing companies)
  • Software solution for the generation of IFRS posting data
  • Early consideration of impact on planning and budget due to multi-period lease terms
  • Parallel accounting according to old and new standard for tracking impact on financial performance
  • Consideration of the interplay with other projects (e.g. conversion to IFRS 15)
  • Early analysis of discretionary leeway and use of such leeway, particularly in the transition approach 

Companies need to prepare for changes to processes, extensive preparatory work for a conversion to the new standard, and the training of relevant employees in accounting, controlling, purchasing, and IT. FAS AG will gladly support you in the ongoing training of your technical staff by holding half-day or full-day in-house training sessions in order to explain in detail the requirements and changes to the new leasing standards under IFRS 16.

Three-phase model for the conversion of lease accounting in accordance with IFRS 16

FAS AG has developed a three-phase model for the conversion to accounting in accordance with IFRS 16. In phase one, the focus is on preparations for the conversion to IFRS 16 and a leasing inventory with a subsequent impact analysis. Phase two goes deeper into the individual contracts or relevant contract data before a lease accounting software is selected and implemented in phase three.

Impact Analysis – Entry of your Lease Agreements

The impact analysis is an important foundation and the first step in the 3 phase model developed by us for the conversion to the new lease accounting under IFRS 16. All of your company's lease agreements are entered under various categories such as contract structure, responsibility, etc. by means of a comprehensive questionnaire. According to the subsequent analysis and evaluation, the first phase feeds into a specific implementation plan. Here you will learn about the advantages of an impact analysis in the preliminary phase of the conversion to accounting in accordance with IFRS 16.

In-house Seminar: New Lease Accounting Standard IFRS 16

In its half-day or full-day in-house training seminar, FAS AG explains the requirements and changes to the new leasing standard IFRS 16. The training offers good preparation and practical implementation tools for your employees in the areas of accounting, controlling, purchasing, and IT.

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Contact
FAS Lease AG Dr. Peter Adolph Member of the board