What are the real problems of using spreadsheets for doing IFRS 16 reporting? In a recent webinar, we investigated indispensable issues that the finance departments run into when using Excel instead of a specialized lease accounting software.
We love spreadsheets – when fit for purpose. Using Excel for lease management and IFRS 16 reporting is not its home turf, to say the least, especially not when compared to the features of a lease accounting software. Here are nine different shortcomings of spreadsheets when complying with IFRS 16.
1. CPI adjustments
Most leases are price regulated at regular intervals. When the payment schedule is changed, it also has consequences for most other figures, such as depreciation. If done in Excel, the finance department must run the calculations all over again. With a sophisticated IFRS 16 software software, CPI adjustments can be done automatically at predetermined intervals with APIs to national price indices.
2. Changes to the scope of a contract
It is always difficult to predict, especially about the future. When the business's growth is higher or lower than expected, it affects lease management and lease terms. It often involves the need to change a lease because the use of the underlying asset changes. Exercise of options is a standard functionality in most lease accounting software.
3. Document management
A spreadsheet is not an archive. When terms and conditions of a contract changes, how can the finance department be sure the contract at hand is the most recent contract – with the correct payment plan? Instead of calling the person in charge of the contract, finance departments using a lease accounting software can retrieve the most recent contract themselves. It is simply good data management.
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4. Termination and expiration
A spreadsheet is not a calendar and not for document management. Wouldn’t it be useful to be noticed in advance of key dates, leaving room for time no renegotiate prices? Notifications are standard functionality in a user-friendly contract management software.
5. Multiple entries
IFRS 16 agreements are usually registered in several places – both in ERP/Excel and where contracts are normally registered. In a contract management software with support for lease accounting, all roles related to the agreements enter data into the same system.
6. Dependency on key personnel
Designing and maintaining a spreadsheet tends to be done by a limited number of people – often just one. There are multiple risks associated with this practice. One is how robust the formulas are. Another is the risks associated with the person quitting the company.
7. Obtaining the contracts
Listed corporations and other entities using IFRS typically have numerous locations in their home country and abroad. Collecting all the contracts and structuring the data is an arduous task. With a cloud-based lease accounting software, you can have the people with first-hand knowledge of the leasing contracts do the job for the finance department. Yes, you can consider it a contract management software that happens to also fix IFRS 16 reporting.
8. Efficiency and time
IFRS 16 is a challenging piece of regulation – demanding skills and hours to comply with. Using a spreadsheet can only help you with parts of what you know should be automated routines.
9. The auditor bill
With the calculations made in a lease accounting software, the auditor can do random samples and report back, which saves many expensive hours for the company. If finance departments are using Excel, the auditor will need to look into every calculation.