IFRS 16 - more transparency with less effort

Implementation of IFRS 16

Application of IFRS 16 has been mandatory since January 1, 2019. The new standard applies to all companies acting as lessees in rental and leasing relationships. But what exactly do CFOs and administrators of SAP systems in companies have to consider? And how can the periodic processing of leasing transactions be simplified?

According to the previously applicable regulations under IAS 17, it was still possible to differentiate between "operating leases" and "finance leases". This meant that operating leasing did not require any accounting - the lessee did not have to account for the leased asset. Although a lessee had to record the payment obligations in the balance sheet, the resulting leasing expenses only had to be recorded in the income statement.

This has now changed fundamentally with the new IFRS 16 standard: Off-balance sheet" financing of leases is no longer possible. Instead, the new standard requires accounting for rights of use and the associated leasing liabilities ("right-of-use approach").

Accordingly, the lessee must in future periodically depreciate the right of use and repay or pay interest on the leasing liability. A depreciation expense and an interest expense are therefore recognized in the income statement.

However, the IASB grants lessees two facilitation options: low-value leases with a new asset value of USD 5,000 and short-term leases with a term of less than twelve months.

Our IFRS 16 solutions

For companies, IFRS 16 primarily means increased time and effort. This is especially true if they still enter their leases "manually" in Excel or SAP-external applications.

Because this is the case, GAMBIT Consulting offers two solutions with which the periodic processing of leasing transactions can be fully integrated, automated and accelerated: the standard solution of SAP (SAP RE-FX) and an in-house development, the GAMBIT Leasing Cockpit.

The GAMBIT solution is characterized by a particularly simple and transparent operation; furthermore, no license fees are charged for this solution.

Both solutions have numerous advantages for lessees, including:

• the periodic mass processing of contract valuations
• the automatic calculation of leasing liabilities and rights of use
• the evaluation of the lease over the entire life cycle
• complete integration with SAP (FI-AA, FI-AP and FI-GL)
  
• the evaluation of leases to structure the information in the notes to the balance sheet
• digitization of leasing contracts
• SAP RE-FX only: Contract management (here: digital image of the contract in paper form)

In addition to IFRS 16, both solutions can also be used to meet the requirements of other regulations: for example, the regulations of US-GAAP ASC 842 and commercial law (HGB).

Precise fitting

In concrete terms, the benefits of the solutions become particularly clear when a company records its leases in Excel, for example. With SAP RE-FX or the Leasingcockpit the necessary periodic amortization and interest reservations can be implemented however "on push of a button" - thus fully automatic, time-saving and IFRS 16-conformal.

Furthermore, the solutions are fully integrated into SAP FI-AA (asset accounting), where companies carry out the periodic depreciation of the usage rights. In addition, the solutions are also integrated into SAP FI-AP (accounts payable) and of course SAP FI-GL (general ledger).

Further advantages result from the direct integration of the solutions: reporting is improved, transparency is increased and the previously required coordination between external tool and SAP is no longer necessary.

In short: the finance department is considerably relieved by the automation of business processes. In addition, the susceptibility to errors is reduced because manual calculations and postings are no longer necessary. Residual leasing liabilities and open payment obligations can be tracked at any time in both solutions (reporting).

You need help?

GAMBIT advises and supports enterprises, if it concerns the new standard IFRS 16: The specialists set up SAP RH-FX or the leasing cockpit, make the integration of the solutions into the SAP modules and advise enterprises also economically. The highest goal is always to minimize the resulting additional expenditure by the new standard for the enterprises.

Especially the implementation of rather inflexible solutions (Excel or other applications which are not fully integrated into SAP) into the more efficient SAP tools requires competences in the areas of finance, accounting and migration - competences which the experts from GAMBIT can demonstrate. This also applies to the special knowledge about SAP RE-FX which only few consulting companies have.