It is now well-known that the introduction of IFRS 16 has had major reporting consequences for companies with off-balance contracts, such as property lease contracts, with implementations often taking six to nine months. This is because the new IFRS standard requires input from so many departments, including property, finance, IT and purchasing - and according to JLL research, 52% of property managers indicate that up to a third of their data on number of buildings, square metres, use and costs is inaccurate.
This has a huge impact on the timely and accurate implementation of IFRS 16. In fact, without the correct data on property and lease contracts, a compliant and cost-efficient implementation of this standard is simply impossible. The answer lies in combining Integrated Workplace Management System (IWMS) software and IFRS 16 compliancy within one solution. Why? In this blog I will explain the main organisational benefits of this approach.
Clear overview of all contractual obligations
The main reason why organisations are interested in combining an IWMS solution with IFRS 16 compliance is centralisation. Companies want a clear overview of all their contractual obligations in one system to enable them to report according to the requirements of IFRS 16. After all, how can property and other business asset leases be added to the balance sheet as debt if it's not clear which contracts have been set up in which countries? And not only which contracts, but also with which parties, the contract duration and the level of the rents. Without complete data on all leases worldwide, it is almost impossible to comply with IFRS 16 in a timely and cost-efficient manner.
Accurate and up-to-date information
For organisations that already lease their property, the implementation of an IWMS system in combination with IFRS 16 is extra valuable. The more property leases, the greater the lease accounting impact, which significantly increases the urgency for correct accounting. In addition, a large number of leases leads to a dynamic property portfolio that you must fully justify through disclosures on financial statements. This is only possible with accurate and up-to-date information about your entire portfolio and current leasing contracts, such as contract duration and annual rent. This includes a periodic assessment of whether the use of options for extension or early termination is ‘reasonably certain’. Even without an actual change to the lease, ‘reasonable certainty’ affects the figures to be reported, and applies to both the leasing of property as well as business assets, such as cars, production equipment and office facilities.
One single source of truth
An integrated software solution combines property management processes such as portfolio management, lease management, strategic space planning and transaction management with a proven lease accounting solution for property and asset lease contracts. By combining these processes into one software solution, organisations benefit from a single source of truth and a 360-degree view of their entire portfolio. This allows property and finance managers to make informed decisions about their portfolio and lease strategies and also deliver accurate lease accounting data from the same process.
Implementing the new standard is an intensive job. However, by combining the new standard with an IWMS, you get clear insight into a wide range of data about the entire lease portfolio; a precondition for
timely and efficient compliance with the new requirements.
Do you want to know more about IFRS 16 compliancy, different methods of implementation and the benefits of combining it with an IWMS? Please download our white paper.