Lease reporting under IFRS 16? Help is here!

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Lease reporting under IFRS 16? Help is here!

Business is all about buying and selling, right? For the most part, yes. But for many companies, it’s also about leasing. For companies in a diverse range of industries, leases make up a major part of their operating expenses. These companies lease office and retail space, vehicles, equipment, machinery and a myriad of other items essential to their operations.

Accounting for those leases is a major responsibility for the finance organizations at these companies. As every finance professional knows, the difference of a few percent here or there, in a lease payment or a tax deduction, can have a significant impact on profitability. So the introduction of the new IFRS 16 accounting standard under International Financial Reporting Standards (IFRS) could have major consequences for any company that depends on leased assets to function.

Leases recognized as assets and liabilities

IFRS 16 introduces a single accounting model for lease reporting. It requires lessees to recognize assets and liabilities on their balance sheets for all leases with a term of more than 12 months, unless the asset has a value of less than US$5,000. IFRS 16 replaces the earlier leasing standard, IAS 17, and for most companies, it takes effect for annual reporting periods beginning January 1, 2019.

Under IFRS 16, lessees are required to record leases as assets, representing the right of use (ROU) of the underlying asset, for example, retail space in a shopping mall. The corresponding obligation to make lease payments is recorded as a liability. Lease liabilities are reported at the present value of future payments, with only depreciation and interest cost separated on the P&L. The new leasing standard also removes the distinction between finance and operating leases.

Introducing the IBM Planning Analytics Solution Accelerator for IFRS 16

The new reporting regime not only affects lease administration and accounting, it also has the potential to influence numerous decisions companies make about whether to lease or purchase, how to structure lease agreements, and a number of other issues. Fortunately, there is a way to speed and simplify administrative processes and gain the insight management needs to make the right decisions on leasing.

The IBM Planning Analytics Solution Accelerator for IFRS 16 is a pre-packaged framework designed to help you manage the complete lease accounting workflow, from contract creation to expiration.

The Solution Accelerator includes:

  • A built-in IFRS 16 qualifier, to ensure that a given contract qualifies as a lease under IFRS 16
  • A calculation engine to calculate future cash flow payments at net present value
  • Rules to calculate the value of both right-of-use (ROU) assets and lease liabilities, including future payments, interest and depreciation
  • Capabilities to integrate IFRS 16 with enterprise resource planning (ERP) and the close, consolidate, and report process
  • Self-service visualizations to help communicate insights quickly

Self-service visualizations communicate insights quickly.

Self-service visualizations communicate insights quickly.

More efficient processes; more informed decisions

As it take effect worldwide, IFRS 16 is sure to produce many changes in how companies structure and use their leases. The Solution Accelerator can help organizations perform the important accounting tasks more efficiently, and provide the insight needed to make decisions about leasing quickly and confidently.

To learn more about how the IBM Planning Analytics Solution Accelerator for IFRS 16 works, read all about it in our new solution brief.

And if you’d like to learn about just about everything else you can do with IBM Planning Analytics, please join us for the second annual IBM Analytics University conference. It’s offered this year in two new cities, Stockholm, Sweden, September 17-20, 2018 and Miami, Florida October 2-5, 2018. Check out the IBM Analytics University web page for more conference information.