IFRS 16: effective in 2019 but impacting processes and systems in 2018

IFRS 16, the new laws and regulations around Lease Accounting, comes into force in 2019. Given the impact on balance sheet ratios, many organisations are processing this as a system change with adjustment in the 2018 year-end balance sheet. Thus, the impact on processes and systems is actually already in 2018.

To include operating lease and rental contracts greater than USD 5,000 in the balance sheet under 'assets and liabilities', you need to list them, process them in systems and record them in the balance sheet. You probably think that this information is already known because it is included in the notes to the financial statements (off-balance sheet liabilities). However, practice proves more recalcitrant. Including lease and rental contracts in the balance sheet on an intracompany basis shows that this still needs to be thoroughly substantiated, with sufficient controls for correctness and completeness.

Besides adapted processes, software support is also essential to achieve the implementation of IFRS 16 in a thorough and controlled manner. One example is Tagetik, in which the relevant contracts are imported from source systems via interfaces, with or without manual addition of the necessary data. However, these sources must be available, for example in an ERP or a P2P system.

In practice, these ERP and P2P systems often turn out to be set up only for the ordering process and not for contract management. And care therefore... Louis de Koning, Partner at Improven, indicates that the procurement process does not start with the order, but rather with the conclusion and management of the procurement contracts and suppliers. "There is absolute improvement potential here, which is also necessary in the context of IFRS 16, both in ERP and when deploying a best of breed P2P platform such as eSize, for example."

For more information on implementing IFRS 16 and/or improving your procurement processes and related systems, please contact Louis de Koning, Partner at Improven louis.de.koning@improven.nl or 06 53 78 56 57.