Did you know that many companies feel that their financial reporting still falls short?
Lease accounting is one of those areas that is a complex and confusing process, but with the right software, it can become much easier.
IFRS 16 Software is designed to help businesses comply with the new lease accounting standard and make their lease accounting process much simpler.
In this article, we will discuss the features of IFRS 16 Software and how it can help your business stay compliant with new regulations.
What Is IFRS 16?
IFRS 16 is the most recent International Financial Reporting Standard for accounting for leases. It replaces the previous standard (IAS 17) and became effective for annual reporting periods beginning on 1 January 2019.
The main change under IFRS 16 impacts the lessee the most and states that all leases are now accounted as a “Finance Lease”. Stated differently, all leases will now be accounted for on the balance sheet as assets and liabilities. This will provide greater transparency into a company’s financial position and related performance metrics.
The new standard will also require companies to disclose more information about their leasing activities, including the:
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- Total amount of lease payments
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- The terms of the lease
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- The nature of the leased asset
While the changes may seem daunting at first, IFRS 16 is designed to provide a more accurate and transparent portrayal of a company’s financial position. With time and familiarity, the new standard should become second nature for accountants and investors alike.
Who Does IFRS 16 Apply To?
The standard applies to all entities that enter into leases, however there is an exemption from applying the full scope of IFRS 16 (more on this later, and in our ultimate IFRS 16 guide).
IFRS 16 requires lessees to recognize a lease liability and a right-of-use asset on their balance sheet and this treatment assists in the goal of the standard to provide a more faithful representation of an entity’s leasing activities.
In addition to the new disclosure requirements under IFRS 16, lessees are also required to disclose what the impact was on the adoption of IFRS 16, such as a retained earnings adjustment on adoption date.
In particular, it has resulted in an increase in both assets and liabilities on the balance sheet.
What Do You Need to Account For IFRS 16?
In Rubli’s Practical Training, the IFRS 16 overview covers broadly the inputs to the calculation as well as what the accounting treatment would be for IFRS 16 leases. Lessees must recognize a lease liability at the present value and a corresponding right-of-use asset on inception date of the lease.
The interest rate used to discount the lease payments is based on the market rate for your company at the time of the lease inception.
The IASB however recognised the fact that for certain leases it would not be logical to apply the same rules and included an exemption for leases with specific criteria.
What Is the IFRS 16 Exemption?
The International Accounting Standards Board (IASB) introduced the IFRS 16 exemption, which is an easier method of accounting for leases.
For a lessee all leases are treated as finance lease liabilities, except short-term leases and leases of low-value assets.These types of leases will only be accounted for through the income statement as a lease expense with no liability or asset to be recognised.
IFRS 16 Software: Compliance Features
IFRS 16 Software provides various compliance features to help users adhere to the new standard. The software automatically calculates and accounts for the lease liabilities and right-of-use assets and produces the required disclosures.
It also allows users to easily track changes in leases, including modifications and terminations. IFRS 16 software includes a range of controls and validation checks to help ensure accuracy and consistency for your lease accounting.
As a result, IFRS 16 Software provides a comprehensive solution for companies looking to comply with the new standard without experiencing the time constraints or disclosure burdens accompanied by the standard.
IFRS 16 Software: Lease Accounting Benefits
While the implementation of IFRS 16 may require some initial effort, having a solution as part of your IFRS 16 lease accounting will provide numerous benefits, both for the users of the tool and those charged with governance of a company.
For the users, IFRS 16 software will provide a more reliable and consistent lease accounting process whilst freeing up their time. For those charged with governance they have access to the information at a holistic view about their company’s leasing obligations and no key personnel risk.
How to Vet IFRS 16 Lease Accounting Software
When it comes to choosing accounting software, there are a lot of factors to consider. For businesses that have lease portfolios with frequent changes, the IFRS 16 standard requires special attention. Here are four tips to help you choose the right IFRS 16 lease accounting software for your business:
Make Sure the Software Can Keep Up
The IFRS 16 standard might remain constant but your lease portfolio as well as the lease terms will constantly be evolving. So, it’s important to make sure your software can keep up with the changes. Look for a vendor that offers a wide range of support with flexible lease terms, preferably a lease tool that has an appetite for customer customization.
Consider Ease of Use
The last thing you want is for your accounting software to be so complicated that it’s hard to use. Look for a user-friendly interface and robust support in case you need help down the line.
Think About Your Reporting Requirements
With IFRS 16, there are several disclosure reports required and, in most cases, this would be in addition to any internal reporting requirements as well. From this it is vitally important to understand the extent of reports available from the IFRS 16 Software for you and if any tailored reports do exist.
A useful feature that was added by the Rubli IFRS 16 software is called “one-click reporting”, where all of your reports are available at a click of a button.
Get a Demo
Once you’ve narrowed down your options, be sure to get a demo of the software before making your final decision. This will give you a chance to see how it works and make sure it’s the right fit for your business needs.
For a full list of features refer to our blog: 13 Things To Consider When Searching For IFRS 16 Software.
Best IFRS 16 Software: Rubli
If you’re looking for the best IFRS 16 software on the market, look no further than Rubli.
Our software offers a user-friendly interface that’s caters for any lease terms you may have. In addition, our IFRS 16 software includes standard reports, with no limit to the number of custom reports to be created, so you can set up your reporting requirements with ease. Plus, we offer a free demo so you can see for yourself how our software can benefit your business.
Contact us today to learn more about how we can help you comply with IFRS 16 leases.
