the 7 steps to new lease accounting compliance

IRIS. Look forward

The 7 steps to new lease accounting complianceHow to achieve full compliance with IFRS I6 and ASC 842 whilst simultaneously driving savings and improved governance over your leases

2

IRIS. Look forward

The 7 steps to new lease accounting compliance

Contents

1.0 The New Lease Accounting Standards – IFRS 16 and ASC 842What has changed?IFRS 16 vs. FASB ASC 842What are the main business challenges?

2.0 7 Steps to Accounting ComplianceDesignate a dedicated transition teamSet success objectives & control measuresEstablish a unified platform for lease information & processesReview current lease portfolio & comparative financial reportsDecide implementation date & best approach for transition reportsProduce required reports & fiscal statementsEstablish a long-term lease management strategy

3.0 Lease Accounting Software

Lease accounting software that powers complianceAbout IRIS Innervision

IRIS. Look forward


1 Introduction

Published by the International Account Standards Board (IASB) and the US Financial Accounting Standards Board (FASB), IFRS 16 ‘Leases’ and ASC 842 are new accounting standards that set out the principles for the recognition, measurement, presentation and disclosure of leases.

The introduction of ASC 842 and IFRS 16 require lessees to account for their leases under a single accounting treatment, bringing almost all leases ‘on balance sheet’ and recognises a right of use asset and an associated lease liability. The changes have had a significant impact on companies that utilise leasing as a form of asset financing and provides investors with greater transparency of an organisation’s lease obligations.

For corporate organisations, IFRS 16 is effective for annual reporting periods beginning on or after 1 January 2019. However, for UK public sector bodies which use IFRS accounting standards, the adoption deadline for implementing the new standard is 1 April 2022 – This includes local authorities, central government bodies and the NHS.

For Public companies reporting under US GAAP/FASB jurisdiction, ASC 842 is effective for fiscal years ending after December 15th 2018. However, in light of the challenges related to the COVID-19 pandemic, the effective date for ASC 842 for Private companies has been deferred to fiscal years beginning after Dec. 15, 2021, and interim periods with fiscal years beginning after Dec. 15, 2022.The intention of the new lease accounting principles is to improve the clarity, accuracy and comparability of financial reporting and accounts by providing greater transparency concerning the assets an entity uses in its operations.

“Our aim is to create a neutral playing field that enables investors, lenders and other users of financial statements to make their own independent judgements about where to invest, based on the best possible information available.”- Russell Golden, Chairman of FASB

As the project gains greater momentum, companies are recognising that they need to take action now in order to comply to the new accounting standards for leasing within the short timescale.

1 in 2 listed companies currently using IFRS or US GAAP are impacted as US$2.8 trillion of lease commitments are coming onto balance sheet.

Forward thinking companies have already implemented internal measures and mechanisms that help mitigate the risks of transitioning to these new standards. Furthermore, these companies have also updated their leasing processes and implemented solutions that enable simplified compliance and ongoing reporting, whilst also improving governance and control over their leasing processes.

2

IRIS. Look forward


What has changed

The main benefits of leasing will remain unchanged as leasing continues to offer companies a worthwhile alternative to buying outright.

> Companies still significantly reduce capital expenditure and impact on cash flows by spreading the cost of assets across the lifetime of a lease.

> They can still counteract the impact of technological obsolescence with asset refresh and relinquishing ownership.

> They can still maintain the environmentally friendly aspects of asset disposal and recycling that leasing offers.

> They still have faster access to assets, whilst safeguarding cash flows and avoiding additional impact on existing lines of credit.

Although the new standard impacts how the leases are understood from an accounting perspective and how they impact financial statements. The operational benefits remain.

Operating leases on balance sheetOne of the main modifications to the accounting principles is the way operating leases are classified. Under current accounting rules, an operating lease is not required to be recorded on a company’s balance sheet and is disclosed as a footnote in the financial statements.

“Our standard is converged with the FASB’s standard in its main objective, namely to put most operating leases on the balance sheet. These can no longer lurk in the shadows as off-balance-sheet financing.”- Hans Hoogervorst, Chairman of IASB

In a bid to improve clarity and comparability, the new lease accounting standards require organisations to capitalise their operating leases and recognise the assets and liabilities arising from all leases, with some exemptions

(e.g. leases less than twelve months and low value assets).

Other notable changes arising from the new standards include:

> FASB use a dual model approach for recognising leases. IASB adopt a single model approach.

> The definition of a lease, focusing on separating service components..

> Lease liabilities measurements simplify links between balance sheet, income and cash flow statements retained.

> IFRS 16 includes an exemption for small ticket leases.

Varied approaches to lease recognition

The IASB and FASB aimed for a fully converged standard to ensure that US guidelines matched international ones. Although both require operating leases to feature on balance sheet, the boards have failed to agree on everything, such as FASB’s preference for a dual model approach as opposed to the single model approach adopted by the IASB.

Under IFRS 16, all leases will recognise the right of use asset and lease liability on balance sheet.

FASB is maintaining the differentiation in accounting for operating and finance leases, although with both on balance sheet:

> Most leases currently characterised as capital leases (finance leases) will recognise depreciation of the ROU asset separately from the amortisation of the lease liability.

> Most leases currently categorised as operating leases will be treated by recognising a single, total expense

IRIS. Look forward


3

Revised definition of a lease

Under IFRS 16, the new definition recognises that a lease exists when a customer controls the right to use an identified item, which is when the customer:

> has exclusive use of the item for a period of time; and

> can decide how to use it.

This classification is important as service elements do not need to be recognised on balance sheet. Lessees will need to review their contracts and separate the lease element and the service component, only recognising the former on balance sheet.

Businesses can chose to recognise both the lease and service components as one single lease contract under IFRS 16.

Lessor accountingDue to its complexity, it has been decided that lessor accounting will remain in its current form.

This aims to simplify the new standard, whilst also reduce the burden and costs associated with the change.

Small ticket exemption

Unlike the FASB, the IASB’s standard contains a exclusion for leases of low value assets. IFRS 16 includes guidelines to help lessees determine whether their leases would qualify for this exemption:.

The IFRS 16 exemption for small ticket asset leases should only apply to leases that are:

> not dependent on, or highly interrelated with, other leased assets

> within the suggested threshold of roughly $5,000 as the value of the underlying asset when new

IIFRS 16 cannot express a specific figure for comparison as numerous financial circumstances such as inflation and the supply/demand relationship of certain assets is likely to fluctuate in the coming years.

Therefore, lessees are advised to use $5,000 as a widely accepted estimate.

The FASB standard does not include an exemption for leases of low value assets. They will need to be capitalised on balance sheet accordingly.

Internal processes need revision

One thing that is certain is that businesses need to take greater care when reporting on their leases in financial statements in order to remain compliant with the new global standards.

As the biggest change to lease accounting in 30 years, many businesses will need to update their internal leasing processes and controls in order to ensure they have all the accurate lease data and documentation they need compliance.

Without the correct tools in place, such as IRIS Lease Accounting, achieving IFRS 16/FASB ASC 842 compliance is a complex and challenging process.

4

IRIS. Look forward


IFRS 16 vs. FASB ASC 842

Effective Date: 1st January 2019

Impacts IFRS users

Effective Date:15th December 2018

Impacts US GAAP users

Single Model Approach Dual Model Approach

FASB will adopt the current IAS 17 descriptors for capital leases vs.

operating leasesi.e. 75%+ of asset economic life etc.

All leases will recognise ROU asset and liability removing the need to categorise separate lease types

All leases will recognise amortisation of the ROU asset and interest on the lease liability separately

Operating leases will recognise a single, total lease expense on a

straight-line basis

For income statement purposes, leases will be classified as

operating or finance leases and expensed similar to current leases.

For income statement purposes, leases will result in a front-end

Fully or Modified retrospective reporting accepted

Modified Retrospective reporting only, during transitionary period

No exemption for small ticket assets

Exemptions for leases on assets considered small ticket that are not tied to big ticket items

Early adoption permittedEarly adoption permitted alongside implementation of IFRS 15

IRIS. Look forward


5 What are the main business challenges

Gathering and collating requisite lease data

Under the ASC 842 and IFRS 16, lessees are required to account for their leases under a single accounting treatment, bringing almost all leases ‘on balance sheet’ and recognising a right of use asset and a lease liability. The process of bringing leases on to the balance sheet significantly increases the lease data and disclosure requirements for lessees as well as impacting an organisation’s financial statements.

When implementing the new standards challenges exits around locating and extracting the relevant lease data from contracts or collating the requisite data from various systems/databases across multiple departments, sites and geographies. For many organisations, this exercise is made more problematic due to the decentralised manner in which they managed and maintained their leases – often on disparate and antiquated systems or simple yet erroneous spreadsheets.

Identify data gapsLessees need access to a minimum amount of data for every one of their lease contracts in order to achieve complete and accurate compliance. In many instances lessees will be missing key lease data regarding their leases, assets and liabilities. Sourcing, validating and applying these figures, dates and descriptors will be a lengthy process that will involve considered research and calculations.

Once the requisite data had been found and collated, additional work is needed to validate and analyse the information. This process often requires significant resource and is an extremely time-intensive exercise, often taking longer to complete than planned.

The new definition of a lease

Away from lease data collation and extraction, added complexity existed around the new definition of a lease, in particular how leases differentiate from service agreements. Under the new accounting standards, a lease is defined as a contract that conveys to the right to use of an asset for a period in exchange for consideration. The new definition in practice means that leases may be ‘embedded’ within other types of contracts such as service agreements or maintenance contracts. Because of this, it is important that these embedded leases are not overlooked, as if they are businesses will be left with gaps in their data.

Appropriately identifying these contracts and accounting for them can often proved difficult for organisations and requires a meticulous approach and judgment to accomplish.

Identification of lease modifications:

Whether intended at the outset or found necessary during the initial or additional lease periods, lease modifications have always been common but accounting for these changes is that much more complicated under IFRS 16 and ASC 842. Complexity exists around what constitutes a lease modification, when a lease modification should be accounted for, and establishing what impact a modification has on the lease term.

As part of the transition process many companies will need to address historical lease modifications now and all companies will need to address lease modifications that occur after the transition – The so called ‘day two’ requirement of the new standards.

6

IRIS. Look forward


Determining the incremental borrowing rate:

Though determining the IBR can be considered less problematic than determining the interest rate implicit in the lease (IRIIL), there were still multiple considerations and deliberations that organisations need to contemplate when establishing appropriate discount rates. Factors such as the lease term, credit risk, the borrowing amount, and the country/currency that the lease transaction was entered in to. All of which requires significant judgment for adopters. In addition, in many instances, organisations needed to determine the incremental borrowing rate separately for each lease adding further complexity to an already challenging aspect of compliance.

Selecting a suitable lease accounting software vendorTo accurately produce the journal entries and financial disclosures under IFRS 16, a considerable amount of lease data and technical accounting is necessary. Challenges exist around performing lease modifications, calculating the ROU asset and lease liability, recording an accurate audit trail, and separating lease and non-lease components using current practices.

Considering the aforementioned, many entities have realised that to ensure the integrity of their financial statements and to simplify compliance they need to invest in lease accounting software such IRIS Lease Accounting that can easily generate the requisite accounting calculations, disclosures, and reports in line with the new standards.

When deciding upon your preferred technology solution it is important to make.these decisions early and takie the time to rigorously scrutinise your options. Additionally, when evaluating vendors, it is vital that finance teams invest time in defining their exact requirements and ensuring those are met by any solution shortlisted. Finally, as part of

any due diligence process, it is improtant to establish whether the technology is capable of dealing with the technical accounting requirements of the new standard. One way of ensuring this is by seeking the assistance of vendors that have a strong and proven track record of successful implementations at an enterprise and global level.

The ongoing maintenance of lease data:

Once entities have successfully navigated the transition to IFRS 16 and ASC 842, it is important to understand that the journey does not end there.

Post-transition, entities will need to refocus their efforts and attention towards effectively maintaining the accuracy and completeness of lease data and sustaining ongoing reporting obligations.

During the lifecycle of a lease, it is very common for lease modifications or changes to take place. Frequent lease modifications include part or early terminations, extensions, renegotiated lease payments, consideration changes and rental corrections and impairments. Accounting for these modifications can be complicated and challenging.

To avoid these obstacles, entities should consider implementing suitable controls, systems and processes for dealing with the ongoing requirements of lease modifications.

They should also seek lease accounting software that allows them to effectively perform the necessary modifications and remeasurements, along with providing a complete audit trail of the changes.

https://www.innervision.co.uk/lease-optimisation-and-information-software-lois/lease-accounting-software/

https://www.innervision.co.uk/lease-optimisation-and-information-software-lois/lease-accounting-software/

IRIS. Look forward


7 7 Steps to full accounting compliance

Designate a dedicated transition team

Set success objectives & control measures

Establish a unified platform for lease information and processes

Review current lease portfolio & comparative financial reports

Decide implementation date & best approach for transition reports

Produce required reports & fiscal statements

Establish a long-term lease management workflow

8

IRIS. Look forward


1 Designate a dedicated transition team

Although an obvious proclamation; the most effective way to meet the compliance obligations of the new standards is for companies to prepare in advance.The first step to being proactive is to designate an internal team to oversee preparations for the new standard.

It is important that your company’s response is consistent, cost-effective and efficient across all departments and geographies your business operates in.

It is advised that your business formulates an internal project team dedicated to the leasing project, composed of representatives from departments that are involved in the existing leasing process such as procurement, treasury, operations, finance and accounting.

As businesses are encouraged to look into technology to help relieve the financial and operational burdens, this team should also consult members from the IT department for optimal integration.

This team’s main role will be to develop a clear understanding of the proposed changes, what they entail and what solutions are available to proficiently and successfully make the transition process as simple as possible.

From here, it’s important they keep up with any developments and updates concerning the leasing project and seeking out additional expertise, knowledge and advice if required.

Transition timescales and milestones should also be established and a date for initial application determined. The designated team can then be responsible for overseeing a successful and effective implementation.

Companies are advised to look towards advanced technologies such as lease accounting software that not only help ease the transition to the new standards and facilitate full accounting compliance, but also help improve governance and control over the entire leasing process.

Establishing a central hub to manage the transition process allows for a more considered and effective approach.

It is also worthwhile to include a leasing consultant as a useful contact.They will have a privileged and specialist insight into the new standards and will be able to advise on your business’s best options for cost-effective compliance. The more information you can accrue on the standard’s impact, the better your transition process will be, so why not run some questions by an expert?

Communication is vital for the success of this project, so having an organised storage space for all your leases and a clear contingency plan for the reporting requirements and calculations will significantly reduce the hassle and processing time associated with the switch.

IRIS. Look forward


9 2 Set success objectives & control measures

A project of this scope needs clearly defined measures of success in order to ensure a smooth and cost-effective transition.The key performance indicators of an effective transition are three-fold, covering the preparation, execution and on-going effects of the standard:

> Develop an optimised internal lease management process to identify, gather and analyse historical data for all active leases.

> Run the necessary internal and external reports and ensure lease statements comply with the relevant new lease accounting standard, at a minimal cost.

> Develop a long-term strategy for lease management that facilitates tracking, analysis, reporting and savings for all existing and new lease agreements.

Report on all leases to remain complaint with the change

The main objective, naturally, is to ensure that your company understands and adheres to the new standards and they make the necessary changes to past, present and future financial statements. This is relatively simple to assess – every accountant knows to avoid noncompliance.

The main challenge is to ensure that all the preparations are in place and that all active leases have been considered across each department within your business.

Develop a long term understanding and strategy for better and more efficient lease management

Like minded CFOs and business leaders also recognise that the transition will require investment in time, resources and staff to ensure a smooth and compliant conversion to the new standard.In order to get the most out of the required

changes and to see measurable ROI from applying the new standard, companies should use this transition to develop a standardised and long-term lease management optimisation strategy.

Businesses are able to yield financial return from their investment in compliance by optimising their lease management alongside the transition.

As part of the research and analysis process of determining the best course of action, businesses should take the opportunity to review their internal leasing processes and management.

By identifying inefficiencies, developing a long-term lease management strategy and employing effective lease management software and processes, you can save money in the long run and gain greater control of your leases throughout the lease lifecycle and take action to optimise each stage to ensure you are getting the most out of your leases.

Key Performance Indicators for Lease Accounting

> Develop an optimised internal lease management process to identify, gather and analyse historical data for all active leases.

> Run the necessary internal and external reports and ensure lease statements comply with the relevant new lease accounting standard, at a minimal cost..

> Develop a long-term strategy for lease management that facilitates tracking, analysis, reporting and savings for all existing and new lease agreements.

10

IRIS. Look forward


3 Establish a unified platform for lease information & processes

Achieving compliance with IFRS 16 or ASC 842 without the correct systems, controls and processes in place is an extremely challenging and complex undertaking.Relying on antiquated and unreliable spreadsheets is a risk best avoided as applications such as Excel lack the critical controls needed to preserve the integrity of data, require more maintenance and often need external support (at a cost) to sustain. They are difficulty to troubleshoot and navigate and lack of any “built-in” audit trail functionality important for audit purposes.

In fact, leading accountancy professionals have warned against the “debatable” sufficiency of spreadsheet accounting for this task.

“What [spreadsheet accounting] creates is potentially some data gaps and even data quality issues in terms of what the actual lease may say and what may reside in the actual spreadsheet,”- Sheri Wyatt, Managing Director of PwC’s Capital Markets Accounting Advisory Services

Businesses need a central database for all their leases from which they can delegate, track and deploy the required actions.

There is a clear pressure for business leaders to invest in optimising their financial function in order to achieve long term fiscal and operational success, with cloud computing and advanced data analysis technologies taking a lead role in business development and efficiency.

Lease accounting software should optimise the transition process and ensure ongoing compliance with the current and new accounting standards. Whilst also helping to provide greater lease portfolio visibility,

improved control and governance over leasing processes and reduced risks from lease procurement across the company.

Your lease accounting software should allow your company to do the following:

Lease accounting software provides organisations with a central location to manage the reporting, tracking, analysis and accounting of their active leases in an intuitive and intelligent manner.

> Manage all aspects of lease accounting.

> Automate creation of internal, external and mandatory reports

> Instantly access required lease data and documents

> Reduce internal processing times and increase efficiency

> Integrate with your ERP system

> Address both lessee and lessor accounting requirements

IRIS. Look forward


11

In order to produce an accurate contingency strategy, analyse the scope and impact of the project as well as complete the required calculations and changes to financial reports, businesses need to have access to every active lease currently in use.

Technology and digital solutions will provide the best and most optimised approach to the actions required for a smooth and hassle free compliance.

Accurate and complete data is vital for a successful transition to the new lease accounting standards. In order to make the most of the IFRS 16 or ASC 842 and to ensure full compliance, lessees need to critically review their current lease storage and management systems.

It is critical that your lease accounting software does more than simply host your leases in one place.

Although an undeniably useful feature for new lease accounting standards, a worthwhile and cost-effective lease accounting platform will also provide the functionality to analyse your lease data and notify you when changes or actions are required.

“Implementing these proposals would be a real challenge for many organisations, as they would need to identify all their leases, extract key data, make new estimates and judgements, and perform new calculations.“Companies will also need to consider how these proposals would affect their organisation and business practices..” - Partner in KPMG’s international standards group

The complexities of lease accounting and the associated administrative requirements are easily overcome with IRIS Innervision’s lease management software. A proven and trusted solution which supports both standards, IFRS 16 & FASB ASC 842.

The system allows users to easily comply with the new standards as the application allows them to centralise their lease data and produce all the calculations, disclosures and accounting reports required for compliance.

Today, the solution is relied upon by over 180 global corporates many of which are publicly listed on international stock markets. These entities depend on the IRIS Innervision solution to help ensure compliance and ongoing reporting with the new accounting standards. .

12

IRIS. Look forward


4 Review current lease portfolio comparative financial reports

Once the initial planning is complete and a centralised management process is assigned, the process of gathering and analysing current leasing activities begins.Understanding how your business will be impacted and defining a contingency plan in the early stages of transition is essential.

Before you can define the response to the incoming changes, you need to identify the practical implications the new standard will have on your organisation’s current leasing activities.

To do this, you must collate all active leases and assess how many will be affected and what impact this will have on your financial statements.

This is potentially the most time-consuming aspect of the switch to the new global lease accounting regulations as organisations need to collect information on every lease they currently have or are in the process of confirming. Appropriate software solutions and early action are crucial as most businesses will likely have a disparate system for organising leases.

Those yet to reform their lease management will need to search across archives of spreadsheets and inefficient filing systems, likely finding incomplete data and missing documentation during their review process

“Implementing these proposals would be a real challenge for many organisations, as they would need to identify all their leases, extract key data, make new estimates and judgements, and perform new calculations.” - Brian O’Donovan, partner in KPMG’s international standards group standards group

There are numerous questions finance and treasury professionals should be asking at this stage to gain a better indication of the next steps that should be taken to achieve full compliance in a cost-effective and practically achievable manner.

Before your company can develop practical and realistic timescales or agendas, you need to gather a clear idea of your currently leasing activity and how it measures up:

How many assets are currently under lease?

Do we have any operating leases? Why does our company use them?

Are we fully aware of what the transition will require of us?

Is our desired method of transition conceivable? Do we have the

resources and budget?

What are our biggest limitations/obstacles to full compliance?

How many will be affected by the new lease accounting standard?

Do we have easy access to the required lease data?

Do we have a clear aim for this project?

Do we have a long-term strategy for continued compliance?

IRIS. Look forward


13

Once the data is gathered, it needs to be assessed and analysed.

The transition to ASC 842 and IFRS 16 will impact many financial metrics, including EBITDAR, outstanding liabilities, net income and operating cash flows. It is important that you are aware as early as possible what this impact will be in order to develop an effective, relevant and efficient transition plan.

It is important that businesses gain clear understanding of exactly how they will be affected by the changes and they will likely have an effect on their arrangements with stakeholders, banks, investors, employees etc.

With all your leases centralised on an advanced electronic platform, it’s easier to:

> Analyse a full portfolio of leases

> Identify those leases that will need to adhere to the new standards

> Highlight which financial figures will be altered by the transition

> Where necessary, make the appropriate accounting adjustments to bring the item on balance sheet

Comparative report between existing and new standards

IRIS Innervision’s lease accounting software, contains a unique comparative reporting feature.

This allows users to run an instant report that details how their lease portfolio is accounted for under current IAS 17 and how it will work under IFRS 16, providing a clear view of the differences in the financial metrics.

This functionality provides users with a clear and detailed look at how IFRS 16 will impact their businesses important financial figures within seconds.

As the solution holds their centralised portfolio of leases and completes the complex calculations required, they have access to this information without the long-winded and complicated manual reporting requirement.

This information will give a clearer indication of the impact the transition will have on financial statements, allowing you to plan the best response and alter your current leasing activities as required to accommodate the impact.

The solution also incorporates features that help companies easily filter operating leases, access associated documentation and reducing the inefficiencies and inaccuracies of a manual approach.

14

IRIS. Look forward


5 Decide best approach for retrospective accounting

Decide on: > A Date of Initial Application

> Full or Modified Retrospective Approach

> Early Adoption or Not

> Optional Accounting Reliefs

There are numerous reports your business both needs and should choose to produce as part of this transition. The most complex are the retrospective balance sheet and P&L reports that need to be completed for the stated fiscal years prior to implementation.

If an entity employs a fully retrospective approach, they would treat their lease portfolio as if they had always used the new accounting standard; this provides much greater detail and more useful information on financial statements. However, companies that are yet to utilise lease management software will struggle to collate the necessary data needed to restate their comparative figures.

Following these concerns, the two boards have provided a modified retrospective approach. This would require entities to refer to the date of initial application (DIA) – the first day of the annual reporting period where the lessee first applies the new lease accounting standard –rather than the lease inception. However, this may mean lease commitments are overstated as figures are less accurate.

Unlike the IASB, who offer entities the option to choose either retrospective approach as long as they use it consistently, the FASB will not permit the use of a fully retrospective application.

It is important to note that although both the IASB and FASB’s solutions share a name, both ‘modified retrospective’ approaches differ and are not interchangeable.

Some businesses also have the option to early adopt the new standard. The IASB

have permitted early adoption alongside implementation of the new revenue recognition standard (IFRS 15), whereas FASB does not require this prerequisite.

Some aspects of lease accounting include optional reliefs that, if chosen, must be applied to all leases undergoing the transition. These include the use of hindsight with respect to lease renewals and purchase options, sale and lease back exemptions and the classification of expired or existing leases.

These decisions are much clearer with an accurate and comprehensive overview of the new lease accounting standards’ impact on your full lease portfolio.

More information on these reliefs can be found in these guides by IRIS Innervision. These overviews go through the transition requirements for lessees in much greater detail.

IRIS. Look forward


15 6 Produce required reports & fiscal statements

The accounting treatment falls into three categories:-

> Existing lease accounting guidelines (IAS 17 and FAS 13/Topic 840) - for leases that end before the effective implementation date, small ticket exemptions and short term leases under 12 months.

> The new lease accounting regulations (for IFRS 16 or FASB ASC 842) – for leases that begin after the implementation date.

> A transitionary retrospective method –for leases that are active before the effective date and will remain active after the new standards are in place

A proportion of leases will actually remain unchanged amongst preparations for the new standard. To relieve costs burdens, some active lease agreements will be excused from acquiring the new standard alongside leases that terminate before the effective date.

The reports entities typically find most time consuming and complex are the transitional retrospective reports required for leases that extend beyond the effective date of the new accounting rules.

Provided you’ve invested in lease accounting software and have your lease data migrated, you can easily run the required comparative reports whether you’ve decided on a fully or modified retrospective approach. You will also be able to automate accurate, real time reports for existing and new standards, significantly reducing the manual processing times.

IRIS Innervision’s specialist lease management software runs all of these reports and manages the complex calculations for you. Using your centralised and organised lease portfolio data, IRIS Lease Accounting captures, analyses and visualises the required and desired reports with real-time and accurate data, saving you considerable time.

“Any information we need for accounting purposes at year end is a click of a button rather than a day or two’s work which is a huge improvement”- Domino’s Pizza

16

IRIS. Look forward


7 Establish a long-term lease management workflow

Now that all new leases need to be accounted for under the new regulations, businesses need to develop a contingency planthat extends beyond compliance to ensure that their active leases are not only recorded accurately to maintain compliance, but to make sure that their leases are still optimised, recorded and reported to suit internal and external business requirements.

As data gathering and analysis of important leasing information would have already been completed as part of the compliance process, companies have a better viewpoint of their current leasing activity and be able to easily locate and solve any inefficiencies or identify saving opportunities.

History has proven itself with past accounting reforms. IASB Chairman, Hans Hoogervorst, highlighting how the management and gathering process of practically applying the leasing standard will likely lead to “a new awareness” in the way businesses lease, which could lead to “better capital allocation, better management decisions” and general improvements to the leasing process.

By identifying these areas for improvement, companies are able to find solutions, reducing leasing overheads and creating the ROI finance leaders will be looking for. Whether it’s unexpectedly high lease rentals on certain equipment or an inconsistent lease negotiation process, long term lease management software will expose and solve leasing inefficiencies.

Businesses that invest in lease management software will be able to tackle the short term immediate request to comply as well as have a long term strategy for making the most of their leases.

They will be able to see inefficiencies in the leasing process, maintain consistency and centralisation across the company and generally make their leasing much simpler and effective. This is inline with technological shifts currently reshaping the finance industry as more businesses utilise the benefits of cloud and outsourcing to perfect their data management and operational success.

IRIS Innervision’s lease accounting solution has the capability and features to provide full coverage of every aspect of a lease agreement. From adding a lease to lease notifications informing lessees when a lease nears termination; these processes can be recorded, automated and traced through our lease accounting software.

This gives you have full control over all new leases or renewals that take place across the business allowing you to maintain compliance and standardisations of the entire leasing process.

IRIS. Look forward


17 Lease accounting software that powers compliance

Achieve IFRS 16 and ASC 842 compliance with ease

Centralise, analyse and report on all your active lease agreements with IRIS Innervision’s intuitive and proven lease accounting software

Request A Demo

End-to-end IFRS 16 and ASC 842 lease accounting software

IRIS Innervision’s lease accounting software is a proven solution that simplifies compliance with the IFRS 16 and ASC 842 standards. From publicly listed companies to public sector bodies, thousands of finance professionals around the world rely on IRIS Innervision to

transform their leasing processes, centralise their data and automate lease accounting compliance

Transform Processes

Transformational lease accountingprocesses that put you in total control across the entire lease

life cycle

Guarantee Accuracy

Proven technology that delivers fast, accurate disclosure and

reporting, first time every time

Automate Compliance

Replace ineffective spreadsheets and easily comply with the latest lease accounting standards, IFRS

16 and ASC 842, this year and every year

Centralise Data

Centralize and view your entire lease portfolio in real-time and

main compliance as your leases change

http://info.innervision.co.uk/ifrs16leaseaccountingsoftwaredemonstration

18

IRIS. Look forward


Thank You.

Due to the nature of the matters discussed in this publication, the information contained within it and any pages linked to it are clearly subject to change, without warning. The Publisher will not be responsible for any losses or damages of any kind incurred by the reader whether directly or indirectly arising from the use of the information found within this document.

This publication is not intended for use as a source of legal, business, accounting or financial advice and has been prepared for general guidance only. All readers are advised to seek services of competent professionals in the legal, business, accounting, and finance fields. Absolutely no guarantees of income are made. Any references to income are done solely for the purpose of illustration and should not be understood as typical results. The reader assumes full responsibility for use of information contained herein. The author and Publisher reserve the right to make changes without notice.

IRIS Innervision is an international leader in the provision of IFRS 16 and FASB ASC 842 Lease Accounting Software and Lease Portfolio Management services to global corporate lessees.

Our flagship solution, IRIS Lease Accounting is a pioneering solution that supports both standards, IFRS 16 & FASB ASC 842, as well as existing IAS 17. The system allows users to easily comply with the new standards as the application allows them to centralise their lease data and produce all the calculations, disclosers and accounting reports required for compliance.

Today, the IRIS lease accounting solution is relied upon by over 180 global corporates, many of which are listed on the FTSE and other international stock markets. These entities depend on IRIS Lease Accounting to help ensure compliance with the new accounting standards.

The solution is currently used in over 100 countries and houses in excess of 160,000 leases, with a combined value of over €90 Billion.

For further information about IRIS Innervision’s lease accounting solution and leasing services,

visit innervision.co.uk/email [email protected]

Look forward

Win new clients with your practice website

20

IRIS Software GroupHeathrow Approach 470 London Road Slough Berkshire SL3 8QY

0344 815 [email protected]

© IRIS Software Group Ltd 04/2021. All rights reserved.

mailto:info-innervision%40iris.co.uk?subject=

the 7 steps to new lease accounting compliance

Documents