Benefits of IFRS 16 & Centralized Lease Accounting

Benefits of IFRS 16 & Centralized Lease Accounting

The benefits of IFRS 16 goes beyond transparency and compliance. In this article, we will expand on the advantages that IFRS 16 software support can provide for organizations that have already implemented IFRS 16 and organizations that consider transitioning to IFRS standards in their financial reporting.

Centralizing lease management under IFRS 16 brings a structured approach and robust solution to lease accounting, streamlining processes and improving control over lease portfolios.

Alot of businesses have already implemented centralized data gain control over their lease agreements. As stated by PwC, the right tools to manage leases have enabled organizations to reduce risk and achieve cost reductions. This applies both before they enter into leases and throughout the entire lifecycle of managing their leases.

Yet, there are still a significant number of companies that are in the early phases of getting full visibility and analyzing their lease agreements and the associated data. PwC’s survey reveals that over half of the surveyed companies, utilize spreadsheets to a certain extent, and nearly 40% anticipate adopting a new IT solution within the next couple of years.

So how does IFRS 16 software help organizations achieve greater value, efficiency and cost reductions?

Benefits of IFRS 16 & Centralizing Lease Management

Only 40 per cent of the respondents in the PwC survey organize their rental processes centrally on an ongoing basis.

PWC Survey

A significant challenge to capturing the full benefits of “IFRS 16 improvements” lies in the fact that numerous businesses still manage their leasing arrangements in a decentralized manner, despite central management of IFRS 16 implementation initiatives This decentralization prevents the adaptation of best practices, process automation, and the realization of additional advantages beyond basic compliance, as outlined below.

The PwC survey points out three areas in particular where a company can improve the lease management processes and get significant benefits from adopting a centralized IFRS 16 system:

  1. 1. Better integration of best-of-breed software in the current ERP Software or Financial Consolidation Software and other business systems, or implementation of own software if the organization currently uses spreadsheets to IFRS 16.
  2. 2. Optimization and automation of Contract Management
  3. Analyze data on leases to identify areas for cost reduction and more (cost) efficient use of assets.

Our customers have also expressed several advantages from our IFRS 16 solution:

  • One place for all leasing contracts
  • Access for all relevant employees
  • Consistent application of policies across leasing agreement
  • Automated lease calculations and journal entries
  • Fast and easy consolidation and forecasting
  • Better analysis and insight
  • Robust integration to ERP and reporting tools
  • Reduced leasing cost

One place for all leasing contracts

68 percent of contract professionals search for completed contracts at least once a week.

Corporate Legal Operations Consortium (CLOC)

Reduced cost of lease management and compliance

A centralized lease management system creates a single repository for all lease documents, making it easier for organizations to access, manage, and review contracts. This consolidation helps ensure compliance, improve accuracy in reporting, and facilitate quicker decision-making processes by having all lease-related information in one place.

An automated lease management system provides a comprehensive audit trail of all lease-related transactions and changes. This transparency simplifies the auditing process, potentially reducing auditing costs and time by providing easy access to required documentation and evidence of compliance.

Eliminate wasted time looking for contracts

Secure storage of all leasing contracts provides easy access to all leasing contract documents for all relevant internal and external parties. With an organized structure of libraries and search capabilities, ShareControl IFRS 16 is designed to significantly reduce the time and effort spent on locating contract documents.

However, it is important to check access permissions for everyone who will have access to all or part of the contracts and which permissions they should have. In ShareControl IFRS 16 you can define who within your organization has the rights to view or edit specific libraries. This ensures that sensitive information is safeguarded and that the right personnel have the right access at the right time.

Easy access to contracts can lead to reduced leasing cost

When procurement and contract management they can easily find both the contract they need for performance evaluation as well as other similar contracts which means the optimal information for negotiation of better terms and cost of contract renewals and new contracts.

Automated Calculations & Journal Entries

The IFRS 16 accounting standards require that almost all leases are included and recognized on the balance sheet. This means complex calculations of lease liabilities and right-of-use (ROU) assets as well as adjustments necessary according to actual lease payments. Because of the scope and complexity this process can be a challenge for the finance departments and therefore companies typically prefer to evaluate lease contracts and terms on a quarterly or annual basis. Moreover, there’s a risk tied to reliance on individuals, as the departure of employees means the loss of their expertise.

ShareControl IFRS 16 simplifies these calculations, ensures compliance with company lease policies, and the generation of corresponding journal entries, which reduces the risk of errors and saves significant time.

ShareControl IFRS 16 dashboard

Look up individual contracts

Once you’ve identified the contract you need, a treasure trove of vital data awaits you. From rental payments, rental period and interest rates to installment schedules and depreciation figures, everything you need to know is conveniently displayed in one place. No more digging through multiple documents or spreadsheets.

Enhanced Transparency and Accountability

Transparency is key to building trust and ensuring accountability within your organization. By centralizing all contract changes in one easily accessible location, ShareControl IFRS 16 promotes transparency by eliminating ambiguity and providing a clear audit trail of all modifications.

Centralized management and automation provide valuable insights into the performance and cost-effectiveness of leased assets. This enables companies to make informed decisions about lease renewals, terminations, and acquisitions, optimizing their lease portfolio for cost savings and operational efficiency.

Streamlined Reconciliation

Efficient reconciliation is essential for maintaining accurate financial records and ensuring compliance with accounting standards. . ShareControl IFRS 16 offers a comprehensive reconciliation, designed to streamline the reconciliation process and provide users with a clear and concise overview of lease accounting activities.

Disclosure Notes for financial reporting

With ShareControl IFRS 16, organizations have instant access to note disclosures related to lease accounting. Whether it’s information about lease terms, lease payments, or lease-related commitments, users can quickly locate the relevant note disclosures within the system. Automation streamlines the reporting process, ensuring accuracy and consistency in financial statements. Quick access to the note disclosures ensures that stakeholders have the information they need to understand the financial implications of lease agreements and make informed decisions.

Integration for automated consolidation

IFRS 16 leases are often recorded in multiple locations and applications such as an excel sheet on a local computer drive or file server, in the ERP system, or even a contract management system in the cloud and outside the firewall.

Integrating lease accounting capabilities into a centralized IFRS 16 lease contract management software makes a monumental difference. . All relevant people across the organization and business units, along with the auditor, can all access and work on the digital master version of ALL lease contracts. This consolidation simplifies the process for the finance team to accurately retrieve lease information for inclusion in the ERP or Financial Consolidation software, and financial statements and reports.

Automated Journal Entries

Manual data entry is time-consuming and prone to errors. With ShareControl IFRS 16’s integration with your ERP or consolidation software, organizations can automate the transfer of accounting data for leases. This eliminates the need for manual intervention and reduces the risk of inaccuracies. The automated download of journal entries ensures that financial transactions are recorded promptly and accurately, saving time and resources while enhancing efficiency.

Increased Efficiency of IFRS 16 lease management

Selecting the appropriate IFRS 16 software can significantly impact on your leasing expenses. PwC advises businesses to adopt a comprehensive strategy towards leasing operations and adherence. An automated solution for various aspects of lease management and reporting can yield substantial benefits and cost savings.

Learn more about Share Control IFRS 16 Solution

Are you interested in how easily you can ensure IFRS 16 compliance and get a taste of what other opportunities you can achieve? Contract us to learn more about our IFRS 16 lease accounting software and optional integration to your ERP or Consolidation system.

Få en demonstrasjon av IFRS 16

References: IFRS 16 – Beyond the Implementation, PwC, 2019.

Frequently asked questions about the IFRS 16 system

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