What do you need to think about when planning to implement the new standard?
The new leasing standard will have a significant impact on almost all companies. The bigger your lease portfolio, the bigger the effect on your key reporting metrics.
With IFRS 16 companies will have to bring most leases on their balance sheet, by 2019 at the latest. Besides this, it’s equally important to work out which is the best transition option for them, how they’ll gather the data and what systems changes they’ll need.
Planning an implementation project takes time and care. You can make a start by asking yourself 10 key questions. They’ll help you get a feel for the scale of the challenge ahead. Tackling each of these questions now will be a first step, but there are other things you’ll need to consider.
These questions can help you define the precise contents of your lease contracts, which you’ll need to make the required calculations, but also to find out where the information is stored and who owns it. This can be quite challenging, specifically for large, diverse groups that operate in many countries.
Most analysts already make estimates of your lease liabilities. For the first time, they will soon be able to see your own estimate of your lease liabilities, and be able to make direct comparisons with your peers. You’ll need to be ready to explain any systematic differences.
No analyst or investor will be surprised when your reported lease liabilities increase with the new standard. Most will welcome the additional information, but it’s important that they know what to expect and aren’t surprised by the actual number when they see it.
Bottom line, if your lease liability turns out to be vastly different from your analysts’ estimates, the resulting conversations and the market reaction will be interesting in all the wrong ways!
Regulators and other stakeholders are also paying close attention. Everyone is expecting the disclosures on impacts to become more robust and specific as we get closer to 2019. That puts your financial statements for 2017 and 2018 firmly under the spotlight.
So, are you ready?