Is IFRS 16 all about stressful requirements for processing leasing agreements? No, says PwC. The companies can also achieve a whole new level of contract management and cost reductions.
PwC has talked to CFOs in 400 companies in over 50 countries, spread over almost 30 different industries, about how they handle IFRS 16. So far, the majority of them have focused on meeting the basic requirements of the standard, but many hope that they will eventually achieve better contract management and lower costs.
3 areas for more “IFRS 16 value”
According to PwC, there are three areas in particular where the CFO can improve the company's leasing processes and get additional benefits from IFRS 16:
- Better integration of best-of-breed software in the current ERP system and other business systems, or implementation of own software if the organization currently uses spreadsheets to IFRS 16.
- Optimization and automation of contract management.
- Analyze data on leases to identify areas for cost reduction and more (cost) efficient use of assets.
Centralized data is key
Many companies are already using centralized data to gain better control over leasing agreements. According to PwC, with the available data centrally gathered and the right tools at hand, companies have the opportunity to reduce risk and achieve cost savings before leasing contracts are entered into and - not least - during the life of the lease.
However, many companies are still in the infancy of understanding and analyzing their leasing agreements and stored data. More than half of the companies that PwC surveyed used spreadsheets to some degree, and almost 40 percent said that they would probably use a new IT solution over the next two years.
One of the challenges in realizing more "IFRS 16 gains" is that many companies continue to manage leasing agreements decentralized, even though most of the IFRS 16 implementation projects were managed centrally. Only 40 per cent of the respondents in the PwC survey organize their rental processes centrally on an ongoing basis. This creates challenges for implementing best practice standards, automating processes, and achieving other business benefits beyond compliance.
New data, new possibilities
In addition to solving these problems, there are many benefits to central control of all leasing contracts: With a wealth of available data, your colleagues in the finance department can analyze these and share insights with other departments (purchasing, real estate, and treasury functions) to help achieve significant cost savings and business benefits beyond compliance.
PwC emphasizes that there are significant opportunities to upgrade to IFRS 16 software. In this way, agreement management can be further integrated into the company's IT and reporting environment, including automating and optimizing processes.
Choosing the right IFRS 16 software can make a big difference in your leasing costs. PwC recommends companies take a holistic approach to leasing processes and compliance. A solution that automates many elements of rental administration and reporting can provide significant cost benefits.
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