The time and team investments of IFRS 16 implementation and reporting

Implementing IFRS 16 compliance requires significant resources, including time and personnel. We asked our product manager to explain why and how. 

What are the real issues when it comes to managing IFRS 16 compliance, especially for the first time, and why do they require so much time and team involvement?

To give us the overview, we sat down with Product Manager Karl Oscar Rosli at House of Control. Not only has he taken part in a large portion of our 200+ customers utilizing our IFRS 16 compliance software; he has also gotten the customers’ stories about what life was like before implementation. 

“Software or not, this process is more than a mere accounting adjustment; it's a comprehensive overhaul that impacts various facets of the organization,” Rosli says.

Timeline: From several months to over a year

"Time is one of the most substantial investments you'll make. You need to start with thorough project planning. Evaluating your current lease portfolio is crucial to understand the full scope of work required. This assessment involves a detailed review of all existing leases to determine how they'll be affected by the IFRS 16 standard."

Another substantial time commitment comes from data collection and validation. Gathering all existing lease agreements can be a daunting task, especially if they're decentralized across various departments or locations. Rosli notes that the implementation timeline can extend from several months to over a year, depending on the complexity and number of your organization's lease agreements. 

 "You'll need to compile a comprehensive lease inventory, collecting and centralizing all lease documents – across departments and locations. Extracting necessary information is critical, including lease terms, payment schedules, renewal options, and discount rates,” he says, but adding there is more: 

“Ensuring the accuracy and completeness of this data is paramount, so thorough verification processes must be in place. While this step is time-consuming, it's essential for achieving compliance and setting a solid foundation for your financial reporting under IFRS 16. The good news is that if you utilize specialized IFRS 16 software, this part plus the ongoing compliance work will be much easier and more efficient."

Building the right team

Implementing IFRS 16 isn't just about allocating time; it's about assembling the right team, according to Rosli. While some organizations can only dedicate one person, Rosli recommends a dedicated project team to oversee the implementation process – especially in larger companies. The team should include accounting specialists with expertise in IFRS 16 to interpret and apply the standard correctly. Cross-functional collaboration is key: 

"Your legal or accounting team should review lease contracts to identify embedded leases or clauses affecting accounting treatment. Procurement can provide access to vendor agreements and future lease commitments. Operations and real estate teams offer insights into lease usage, renewal intentions, and asset management."

There might also be a need for external expertise. Sometimes, bringing in external consultants with IFRS 16 experience can streamline the process, he suggests. Engaging with auditors early ensures that your approach meets compliance expectations, which can save headaches down the line.

“Here’s more good news to CFOs opting for IFRS 16 compliance software instead of spreadsheets: Auditors can verify your IFRS 16 accounting much faster, because they don’t need to look into all your spreadsheets’ cells and formulas.”

Part of Rosli’s customer interaction has to do with implementing the software and solving technical issues. However, he and his team also offer advisory services to customers who want more eyes and hands on the actual IFRS 16 reporting. 

Operational and strategic challenges – and long-term benefits

From the finance department's perspective, there are operational challenges to consider. Rosli acknowledges that dealing with a high volume of leases, especially those with complex terms and conditions, can be overwhelming:

"Data quality issues often arise, with incomplete or inconsistent data requiring significant effort to rectify. Ensuring that new software integrates seamlessly with your existing accounting systems is another hurdle."

Despite these challenges, Rosli highlights the long-term benefits of implementing IFRS 16. 

"Improved transparency is a significant advantage. You'll have enhanced visibility into lease commitments and your overall financial position. Access to detailed lease data can inform strategic decisions regarding contract management and cost optimization."

Regulatory compliance is another key benefit. Achieving compliance helps you avoid penalties and reputational damage associated with non-compliance. Rosli often observe that House of Control clients improve financial management and gain strategic advantage.

"While the process is intensive, leveraging specialized software solutions can ease the burden. At House of Control, we've developed tools specifically designed to simplify IFRS 16 compliance, helping organizations navigate these challenges more efficiently," Rosli says. 

In Rosli’s view, CFOs and finance managers, recognizing the scope of what's involved in IFRS 16 implementation is the first step toward a successful transition: “With careful planning, the right team, and appropriate resources, you can achieve compliance as well as enhance your financial operations for years to come.”