For most finance professionals and organisations, the End of Financial Year (EOFY) is when stress levels rise, overtime hours inflate (87% according to one survey), and flawed processes rear their ugly heads.
Even despite automation helping to improve efficiency and accuracy, finance departments still feel the squeeze every year, as the pressure to close faster with less resources bears down.
This year will be no exception. Experts warn that companies face being overwhelmed with the requirements of the new International Financial Reporting Standard 16 (IFRS 16) that took effect in January 2019.
READ MORE: ‘A CURE FOR THE GLOBAL ACCOUNTING HEADACHE’
Jodie Hede, ASG’s Chief Financial Officer (CFO) and former CFO of BDO Australia, says that despite the lease accounting standard only recently being enforced, it has already earned itself a reputation for being one of the more complex standards introduced.
Ms Hede says the impact of leases being brought on to the balance sheet, as well as the headache of having to find and filter through years of lease agreements, is very significant.
“One of the biggest challenges is grappling with ways to collate all the right information. As the standard is effectively retrospective, organisations need to go back through years of data to find old operating and property leases to gather the information” says Ms Hede.
“The standard requires reporting on items that organisations have never had to track before. Over time there would have been staff changes and offices moves. Some of these leases may have been signed 10 or 20 years ago. Also, banking covenants may now be in breach – its hugely problematic,” Ms Hede warns.
To abide with the standard, which can be interpreted in many ways, organisations have to perform a series of very complex calculations that are reliant on data being inputted correctly.
Typically this process would be managed in Excel, but as Ms Hede points out, large organisations like government departments, where there are 1000’s of employees, leased vehicles, housing for employees, computing systems, hardware – it is extremely complex.”
“I would think most organisations would have persisted with Excel. It is something accountants are very familiar with. But it has its downsides.
It is very easy to make errors in Excel, especially when looking at calculations of this scale…Then you still have to transcribe and post journals in accordance with the standard. Excel files can also become so big that they are unstable,” Hede says.
A SOLUTION FOR ALL, NOT FOR ONE
With the standard already introduced, most organisations should be at the point where all leases have been recorded, classified and assessed, with a clear business view of the IFRS 16 impact on performance indicators, covenants, statements and future portfolios.
As the chaos surrounding the standard settles, organisations need to consider practical strategies not just for managing their financial statements, but also on the internal systems required to track the wealth of new data required for each lease.
Hede says, “For my team, I would be looking for something user friendly.
Most people who deal with leases aren’t accountants. They might be property managers or asset managers who don’t understand the complexity of this accounting standard.
A solution needs to demonstrate to me that it is fool-proof for anyone to use.”
In line with the standard requirements, of course I would expect a single central location – but a tool that allows for tracking as well as management accounting; what-if analysis, buying vs leasing, life of payout amounts…so you can make good business decisions.”
Thinking ahead to the future, a solution that keeps up to date with changes to the standard and changes to the interpretation, so my team doesn’t need to worry about that moving forward, would be excellent,” says Hede.
Marcus D’Castro, Executive General Manager for Capability and Consulting at ASG Group says a solution built to support the requirements of the IFRS 16, as well as to support an organisations need to store, track and analyse lease data was created in-house at ASG using Oracle Cloud technologies.
“As an IT partner for enterprises and government organisations, it was brought to our attention that whilst there are lots of options for smaller businesses, or those operating in the property management space, there wasn’t anything that met the needs of our clients…such as integration, scalability, security, and optimisation for various lease types.”
“We wanted to give our clients the tools to enable good governance and compliance, as well as reduce the complexity and effort of the new workload,” says Marcus.
The ASG Lease Accounting solution is pre-built for fast implementation and helps organisations reduce risk, achieve greater transparency, and achieve continuous transformation through four key functionalities:
- Capture agreements and leases
- Right of use asset assessment
- Lease management
- Financial management.