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Preparing for IFRS 16 Accounting Standards

There’s no getting around it, IFRS 16 is going to force accounting teams to operate differently. One of the larger impacts will be a significant increase in leased assets and liabilities and the corresponding financial statement implications. As leases that were previously off-balance sheet move back into the financial reporting structure, you’ll see a hit to the bottom line. You may be looking to your accountants or auditors to provide a list of processes and procedures that must be adjusted, and for guidance on this topic.

One of the greater challenges your team might face is in determining which software application might be best suited to help you through this.

The right software can help your team collect the information you need to report according to the new standards so you need to be thinking about this now.

Many lessees will have a hard time setting up a system of gathering and analyzing enough information to satisfy new requirements. Businesses need an efficient, centralized decision-making process for collecting lease operations data and leveraging the right technology solutions.

With lease administration software, you can prepare and plan for compliance with leasing accounting standards. Furthermore, you can quickly and easily visualize your lease exposure while ensuring all leases meet lease accounting standards. This is where SAP’s Lease Management Software, Nakisa®, can offer your team an automated solution to support your new processes.

Your company might not be prepared for the transition to new accounting standards due to lease data being dispersed across your organization. Since data is collected by different people using different processes and mechanisms, there can be a significant variation in the quality, integrity, and relevance. The problem grows exponentially as lease portfolios globalize, creating a significant risk of regulatory non-compliance, as well as inaccuracy in reporting at larger companies.

SAP’s Lease Management Tool: Nakisa

SAP’s Lease Management tool, Nakisa, provides several advantages to financial organizations.

  • Provides clear visibility into your portfolio composition across different dimensions and “what-if” scenario analysis to identify opportunities to efficiently manage leases.
  • Allows users to visualize, track, optimize, and account for lease exposure. With a single point of entry to collect and validate the contractual attributes of leased assets, it provides support for data collection compliant with the new five-step revenue recognition model.
  • Allows for tracking of leases for compliance and reporting with complete visibility into the changes and decisions made throughout the data collection process, ensuring a clear trail for compliance reporting that can be traced right back to the contract source.
  • It can also be used to aggregate sales-contract data into a single point of access. Contracts can be run through the application to identify primary types of contracts.  It also accommodates business-specific attributes with extensible data collection forms to allow for new and future requirements with the option to collect additional attributes.

If you are already running SAP, then the modern, user-friendly interface will have minimal training requirements and enables more efficient, productive, and visible management of your lease portfolio in a user-friendly, visual format.

Collecting and reporting on information in a new way could be a disruption to an organization, particularly if you work heavily with operating leases. However this is addressed, it is important to choose the right technology enabler to support current and future needs around these new standards. Feel free to reach out to us. We’re happy to help.

Co-author and contributions by John Keenan.

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Tags: Vendor Selection & Advisory