Implementation of IFRS 16 before listing

Implementation of IFRS 16 before listing

So far in 2023, seven companies have been listed on the Oslo Stock Exchange, the last of which was Norconsult. On Euronext, which is part of the Oslo Stock Exchange, 55 companies have been listed on the stock exchange. All these businesses are required to account for leasing and rental agreements in the accounts according to IFRS 16, a correct and efficient implementation of IFRS 16 is therefore central.

Implementation of Share Control IFRS 16 Solution

Norconsult was one of these that chose to implement IFRS 16 with ShareControl IFRS 16 software. The road to a compliant IFRS 16 management system can be long. We have therefore developed a concise list of the most important things to think about when implementing IFRS 16.

Implementering av ifrs 16 utfordringer og løsning

What is the purpose of IFRS 16?

IFRS 16 is a standard from the International Financial Reporting Standards, which aims to standardize the handling of lease agreements in the accounts of listed companies. In practice, this means making lease agreements visible in the balance sheet. Companies with significant lease agreements will therefore notice a large difference in debt ratio and total debt, which reduces the risk of financial surprises for investors or other stakeholders. This will also apply to companies nationally and internationally, at the same time that companies must include leasing agreements across borders, languages and currencies for global accounts.

Read also: What is IFRS 16?

Challenges with IFRS 16

IFRS 16 can be a complicated standard to familiarize yourself with. This is because all leases must now be entered in the balance sheet. The businesses must therefore provide more information on their lease agreements, which is challenging with many different agreements.

The steps for an optimal IFRS 16 implementation

Since the implementation of the IFRS 16 solution in 2016, Share Control has worked continuously with our IFRS 16 solution. The solution has helped many of our customers, including Aker Solutions, which was one of our first IFRS 16 customers. Since then, we have gained a good understanding of what needs to be done before, during and after implementation for an optimal implementation. You can also read our advice:

1. Overall understanding of the accounting standard

The first step to achieving an optimal IFRS 16 implementation is to gain a basic understanding of the accounting standard. In this way, the business gets a good overview of what is required after the implementation of the standard, while at the same time it becomes easier to plan ahead of the implementation.

As we will go into further in step 3, it may be a good idea to identify the leases of the company. Perhaps the company may have some lease agreements in relation to the hire of premises and some for the hire of company cars. The business should therefore investigate which requirements and rules apply to these agreements.

2. Compatible with auditor

Before selecting an IFRS 16 system, the business should explore the possibilities of auditing. There are several solutions companies can choose from for handling the leasing accounts according to IFRS 16. This applies to both manual processes in Excel and other more automatic software solutions. We also recommend thinking about the system’s security, IFRS compliance and ease of use for the accounting department.

3. Identify your contracts

In order to streamline the process around the implementation of the IFRS 16 standard, we recommend that the business starts the process of finding and collecting all rental and leasing agreements as early as possible. This makes it easier and more efficient to get started with the system, in addition to the financial savings of hiring a consultant.

Also spend time defining the lease period, lease payments, extension options and other relevant information. If you have questions about how to find this in your agreements, we recommend contacting the auditor or directly with the software company. These are often people with a deep understanding of IFRS 16.

4. Define the discount rate on your contracts

A key step in the IFRS 16 handling is to determine the discount rate that is used to discount future cash flows of lease payments and lease obligations. This can vary depending on geography, lease period and underlying asset, but it is common for companies to use interest rates that are equal to financing the purchase of the asset, e.g. the interest on the purchase of a car or the purchase of office premises. Most make use of the tenant’s marginal lending rate, which is defined as the interest that the tenant in a similar economic environment would have to pay to borrow, over a similar period and with similar security, an amount necessary to acquire an asset of similar value to the right-of-use asset .

Read more: Calculations according to IFRS 16

5. Integrations

A software for handling the IFRS 16 accounts should also be able to be integrated with several support systems, for example the company’s accounting or consolidation systems. By automating parts of the accounting with the accounting system, you will experience great savings in time and ensure IFRS compliance. This is one of several reasons why you should replace the Excel solution with an IFRS 16 system.

6. Follow-up and internal control

Follow-up and internal control are crucial in accounting. No accountant or auditor wants to hand over an account with errors or deficiencies. The software you choose should contain good solutions for monitoring, following up and carrying out internal control of the accounts and leasing contracts.

Opportunities with ShareControl IFRS 16

ShareControl IFRS 16, can help businesses with the implementation of IFRS 16 and all aspects of compliance with the IFRS 16 standard. With simple installation and good user-friendliness, you ensure good compliance with the regulations. The IFRS 16 solution is an effective and safe tool that has been developed on Microsoft 365, so that all data is stored in the company’s own environment. This ensures the data security of your contracts, but also ensures that you always have access to your contracts.

Share Control IFRS 16 løsning til Microsoft 365

Streamline the import of lease contracts for a large number of leasing agreements from the same leasing company as large car leasing fleets, by using the import module in the system. The function makes it possible to import all contract data monthly into the solution and then the system will automatically handle changes to the leases during the period. A solution that is particularly popular for regular car leasing imports from various leasing companies that makes car leasing much easier to follow up. In this way, you ensure an efficient and optimized process from the import of rental contracts to rental classification at the end.

Frequently asked questions about the IFRS 16 system

Interested in knowing more about Share Control IFRS 16?

Book a demo of ShareControl IFRS 16 here

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