At least NOK 5 million is expected to be spent on fulfilling IFRS 16 requirements

A major survey conducted by KPMG shows that companies all over the world are struggling to comply with the requirements set out in IFRS 16, and that the selection and implementation of software are among the biggest concerns.

In the Global Lease Accounting Survey, KPMG has mapped companies’ statuses of handling IFRS 16 requirements. Over 800 companies from around the world participated in the survey in autumn 2018.

The four biggest challenges in the surveyed companies include:

● Obtaining a full overview of all lease accounts

● Setting the correct discount rate

● Inputting the correct figures in a lease accounting system

● Integrating the lease accounting system with the existing ERP system

Expensive to comply with the requirements
Companies reported that complying with the IFRS 16 requirements is extremely costly for them. 23 per cent of the companies expect to spend at least USD 500,000 on fulfilling the requirements, while 18 per cent do not know how much it will cost.

Obtaining an overview of all leases is labour-intensive work in itself. Over 40 per cent of the respondents said that their companies had 500 or more tenancy contracts, and just as many reported having leases for more than ten locations.

“Finding and collecting data on these contracts may take thousands of hours,” writes KPMG.

It is perhaps unsurprising that 83 per cent of respondents stated that they were still working on collecting and validating data, which is a time-consuming but necessary task in order to perform the required calculations and reporting.

Struggling to find the correct software
Nearly half of the companies reported that they have purchased software for handling the IFRS 16 requirements. However, only 16 per cent had performed a system requirements analysis beforehand.

“These figures suggest that some businesses may have chosen their accounting software before they fully understand their accounting, operational and process gaps. This could result in the selection of software that is not optimal for their particular needs.” writes KPMG.

Furthermore, KPMG is of the opinion that integrating a lease accounting system into existing systems is considered the main challenge as this goes to the heart of one of the key issues:

“Implementation needs to be sustainable over the long-term not just a one-off compliance exercise. Leasing information will be needed for each accounting period moving forward, and the figures will be recalculated when leases are renewed, significant judgements are revised or terms are changed. It makes commercial and strategic sense to take the time to ensure your implementation is framed for the future. This will save significant internal time and effort in the long-run.”

Numerous listed companies in the Nordic region have already solved these challenges with the module from House of Control, which contains all the functionality the company needs for quick, simple and accurate reporting in relation to the requirements in IFRS 16.