Why the AASB16 accounting standard implementation is critical for your business?

Data: 2023.08.28

In the world of business and finance, things change rapidly. You can’t get complacent and settled because new technologies are introduced, more modern solutions are implied and older standards go as they came – quickly. The same applies to the new AASB16 accounting standard. As it mainly concerns bigger entities that have a lot of responsibilities, related to operating leases, it’s crucial to remain compliant and efficient, regardless of the transition process. In this article, we’ll look at the benefits of implementing software solutions for proper AASB 16 lease accounting and why is it important to your organization!

AASB 16 lease accounting requires a lot of new data management

In the past, the distinction between operating and finance leases was quite clear. However, after the AASB decided to completely eliminate the distinction and remove any difference in categorization between the two, lessees will have more duties on their hands. They will have to add all lease-related figures to the balance sheet, adding a heap of additional administrative and accounting-related work.

The only modern way to curb these new challenges is by implementing dedicated software or dedicated plug-ins which can deal with the new regulations. Developing your own scripts is expensive and time-consuming. Free calculators don’t offer that much functionality, so dedicated software is definitely what you should be out for. The AASB 16 accounting standard ready software SOFT4Lessee seems to be the best choice in the market right now. Thanks to MS Dynamics-based interface, your team will have a smooth and simple transition with simplified and clear-cut data management.

If not done properly, poor implementation can bring risks

A lot of critics of this new accounting standard have expressed their concerns regarding the many risks of implementing a new accounting standard like the AASB16 which adds a lot more work. However, our data and a lot of user experience reports suggest that with proper software and data management tools, lessees were able to curb the challenges and handled the new responsibilities pretty well.

With that being said, it’s definitely worth it to familiarize yourselves with the possible threats. So, here are the main risks of improper AASB16 implementation:

  • Issues with working capital and liability-related accounting
  • Disproportionate rises in metrics like EBITDA. You could expect to see a lot of figures move below the EBITDA line and that brings a lot of related issues. If not managed properly, it can cause problems.
  • Reporting anomalies and overvaluing
  • Downsides for companies that aren’t proactive when communicating with financiers

Tons of benefits of the AASB 16 accounting standard outweigh almost all risks

Even though we mentioned risks and potential downsides, there are a lot of benefits for leasing that are still present or even stronger after the implementation of this accounting standard. While in the beginning, a lot of skeptics thought that the new standard could sway businesses from leases, the resulting mood was different. The basic principle of why leasing worked (as a service/financial product) remained intact and thus, tendencies aren’t all that impacted by the arrival of AASB 16.

benefits of the AASB 16 | Soft4lessee

First and foremost, even under the new standard, taxation, asset disposal, and other related processes will retain favorable conditions. In addition, these standards aren’t related to the lease’s spread of the cost throughout the entire contract period, which diminishes the high impact of the initial purchase on the cash flow. Moreover, we can mention that your organization will retain the very same rights to use assets without having the cover the costs which occur when you fully own items. And as a final remark, it’s worth mentioning that the new AASB 16 leases standard works for the benefit of your organization from the standpoint of offering access to cutting-edge tech and necessary equipment much faster, with more cost-effectiveness as well.

For the most part, the benefits of leasing still remain strong, meaning that it’s still going to be an integral part of businesses that are looking to expand and grow. The only area with more challenges is, of course, the lease accounting. And from that point of view, we can definitely claim that the AASB 16 accounting standard for leases does bring new things to consider and take care of.

A one-stop digital solution for all accounting needs

We touched on this a bit in the earlier paragraphs. The only way to properly manage lease accounting in these times is to find the right tool for the job. The software we’re referring to – SOFT4 Lessee is an all-encompassing AASB 16 lease accounting standard-ready tool that has versatile applications and high-level capabilities.

If you use this particular or similar software in your day-to-day operations, you can definitely expect to speed things up and ramp up production in terms of data management and accounting. Such modern software solutions have a wide variety of functions that you can take advantage of. Let’s see how they work in your favor

  • Seamless data transfer – whether you want to import or export data from/to other platforms, you can do that. Both Excel, XML, and different format files can be interfaced through SOFT4 Lessee.
  • Smooth management of lease agreements – a large database of documents is always quite challenging to manage. Luckily, you can sort, categorize and reorganize documents within the SOFT4 Lessee platform.
  • Reports on demand – the great thing about digital tools for accounting is that with high-level software, you can expect to generate insightful charts, graphs, and reports whenever you need them to. SOFT4 Lessee (can also be called Soft4Lessee) app is tailored to prepare various presentations and disclosures with your data, whenever you need. Gather data and generate reports for AASB 16!

Non-lease component management – it’s always quite tricky to separate lease and non-lease components in your books, and you have to do that if you’re in a composite contract agreement. Luckily, such a feature is included and your software is ready to tackle this problem for you!