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IFRS 16 Compliance Presents the Choice to be Outstanding
04-Mar-2018
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One of the main regulations governing leasing arrangements is IFRS 16. In January 2016, the International Accounting Standards Board issued a new accounting standard for leases, called IFRS 16, replacing the old IAS 17 scheme
The new regulation describes the recognition, measurement, presentation and disclosure of leases for both parties to a contract. The main difference between the new mandate and its predecessor is that IFRS 16 brings most leases onto the balance sheet for reporting purposes.
Virtually all large organizations use rentals or leasing to obtain access to assets, which means they will be affected by the new standard. The IASB has imposed a deadline of January 1 of next year for businesses to have this transition completed. The Financial Accounting Standards Board has its own version of the leasing standard, which also takes effect next year for public companies.
The change will be significant, both in terms of the additional manual workload, such as the heavy lifting that is manual contract review, as well as repapering. This is a change not only in how organizations pursue and report on leases, but is also a fundamental shift in overall outlook, placing more assets and corresponding liabilities onto the balance sheet.
There is a real opportunity for the new regulatory requirements, which will notably change how balance sheets are represented, to also yield an epiphany in how contractual data unlocks opportunities that contribute to the balance sheet itself.
In the IFRS 16 process, organizations will likely uncover long-forgotten lease agreements, auto-renewals or other areas where money that has been bleeding can be recovered.
Ensuring leases are IFRS 16 compliant
The first step of the IFRS 16 compliance process is finding and collecting all of an organization’s leases no matter where they may reside. In some organizations leases may have already been brought together in one place, while in others they may be spread across multiple servers and file systems.
Regardless of where they may be found, it is necessary to pull specific information out of these documents to start the compliance process and that requires them to be contained in a single, searchable location.
The latest software designed for the analysis and discovery of contracts can automate a large part of the process, automatically finding leases across an entire contract corpus. Once found, a search-readable .pdf version of a lease can be created and brought into any existing contract lifecycle management system. Simultaneously, discovery and analytics systems can also be employed to extract key contract metadata, thus creating an efficiency that otherw could not be achieved.
Accounting Today Online
Jonathan Drew
8 February 2018
1102 words
English
ACTOT