Last month, the EU endorsed the new IFRS 16 standards published by the International Accounting Standards Board (IASB) in February of 2016. This means organisations across Europe should now be actively looking into transitioning towards compliance.
At Real Asset Management, we are a team of number-crunchers! With that in mind, we recently conducted a poll to discover where organisations are with regards to their IFRS 16 planning. Here is a summary of some of our findings.
Half of the people surveyed stated they believed the biggest opportunity to come from transitioning to the new standards will be the identification of data and discovering IT system gaps. This suggests many accountants recognise the quality of lease information is not currently sufficient. This is further emphasised by the fact that 38% of those polled said they were looking forward to enhancing business processes and controls, whilst the remaining people said they felt the biggest opportunity would be improving lease management altogether.
Around 43% of people said they had not yet started with IFRS 16 implementation but accepted the regulations will affect them. With just over a year to go until the standards take effect – it might be time for those in a similar position to start planning! The other participants stated they were either currently carrying out impact assessments or busy implementing a solution. A lease accounting system will be imperative to simplifying the transition, as a centralised repository of all relevant information will save a huge amount of time that would otherwise be spent locating contracts and searching for lease details.
We wanted to get an idea of what people felt were the significant challenges they would face during implementation of IFRS 16, so naturally we asked! We found 26% of participants are most daunted by the prospect of validating their existing lease data and 16% felt that implementing IT systems would be the biggest source of anxiety. A further 16% said they were worried about making business and operational changes, whilst 11% stated they were predominantly thinking about judgement calls they will have to make and the extra technical accounting burden. 5% of those surveyed believe they do not have the project management resources available to meet the needs of transitioning and the remaining 26% expected all of the aforementioned challenges to be most taxing!
We understand the temptation to bury your head in the sand, especially when faced with all of these challenges. With IFRS 16, we really need to meet the challenge head on to avoid an unmanageable rush in December 2018!
IFRS 16 may lead to an increased work load in the short term, but the standards will also bring through a new era of lease information clarity and improved accounting practices.