The 3 biggest challenges companies face when transitioning to new IFRS 16 software
Just 4 months are left until the IFRS 16 lease accounting changes become effective and numerous companies still do not have a software solution selected. While some are in the middle of the selection process, others are only beginning to collect advice from auditors and starting to look for providers just now. What are the biggest challenges that companies who are transitioning to the new IFRS 16 software face?
1. Lease data collection
The biggest challenge that influences all the companies affected by the changing standard is the lease data collection. The process requires Lessee to identify contracts, containing lease component, which may be present in supplier, service provider and rental contracts. Massive amounts of lease data that has never been collected by a company before, will now have to be presented on the balance sheet. As the data collection and entry may require manual work, there is a high probability of human error, which can often lead the whole software implementation process to be postponed. Large corporations, which have their data scattered in different countries, face even more issues, having to acquire data from all its subsidiaries.
2. Process harmonization across all subsidiaries
Choosing a new lease accounting software system requires time and making a responsible investment decision. For an international company, the whole process becomes even more challenging as there is a need to coordinate the implementation process in all subsidiaries and choose one software solution that supports centralized and uniform accounting for leases.
The challenges lay in the process of standardization through all legal entities. The local procedures in subsidiaries A and B may be very different process-wise, and one party can have services and lease conditions which are not applicable to another, while their contract data for operating leases come in different formats, etc. It’s important to note that the selected software should also be easily integrable into the accounting systems which are used by subsidiaries.
Whether you are developing your current software or have decided to purchase a new system, the transition will be time-consuming nonetheless. Your current system may have gaps and the new software does take time to select and implement.
Finding all-in-one software to meet all IFRS 16 requirements is not a one-day project, although numerous companies are lingering to decide. Bearing in mind that many companies start their financial year from January 2019, those few months before will be a peak time for software vendors. Our practise shows that companies tend to push the software purchasing decision making very close to the actual deadline. In some cases, several companies decide to purchase the software at the same time, making it hard for project teams to keep up and meet everyone’s needs at once. Remember, the faster you start the transition, the easier it will be!
Establishing a successful time and results-efficient IFRS 16 software project requires hard work from both the company and the software vendor. Even though the whole transition will be both time and money consuming, the outcome will bring much more clarity to the balance sheet and will solve the obscurities that were raising questions in the past.
What’s the progress of your IFRS 16 project?
IFRS 16 will have a huge impact on how organisations need to manage and report their lease data. Are you prepared for the changes IFRS16 will bring from January 2019? We offer a smooth, fast transition to IFRS 16. But don’t take our word for it – try it for yourself first.