Why IFRS 16 software is so necessary
Ever since IFRS 16 replaced the old leasing standard IAS 17, many companies have been grappling with adoption of, and compliance with, this new standard. Especially as the number of leases within the company increases, the complexities involved, and the impact of errors or noncompliance, has increased too.
Companies, accounting teams, auditors and advisors have discovered that dealing with leases as was previously done – often manually – is just not possible anymore. Lease modifications, new leases, and robust disclosure requirements all mean that managing leases without lease accounting software is all but impossible.
In this article, we’ll investigate what to look for when choosing IFRS 16 lease accounting software.
IFRS 16: a primer
IFRS 16 was first issued in 2016, and essentially became effective in 2019. The development and release of IFRS 16 was in response to several high-profile accounting scandals, where companies had used loose rules around leases to leverage “off balance sheet financing” and not present a true picture of their financial situation.
The chairman of the IASB confirmed this, noting that “These new accounting requirements bring lease accounting into the 21st century, ending the guesswork involved when calculating a company’s often-substantial lease obligation. The new standard will provide much-needed transparency on companies’ lease assets and liabilities, meaning that off balance sheet lease financing is no longer lurking in the shadows. It will also improve comparability between companies that lease and those that borrow to buy.”
How to choose the right IFRS 16 lease accounting software
Choosing the right IFRS 16 lease accounting software for your company will depend on multiple factors. Perhaps most crucial among these is the number of leases in your company.
The following questions can be helpful when assessing which IFRS 16 lease accounting software is right for you.
What do I need it to do?
If you’re a small company with only, say, 5 leases, you might only need a very basic solution. If you’re a larger company, or have more leases, you’re probably looking for a full end-to-end solution; from source documents through to auditable journal entries and disclosures.
Some solutions are manual and require much human input. Others are automated, and let AI-enhanced software do the heavy lifting for you.
What solutions are available that meet my needs?
In terms of available solutions, we start from the most basic, and move through to the most advanced.
A very basic solution is to use Microsoft Excel. Excel is a great tool when dealing with a smaller number of leases, but as soon as that number grows, it can be extremely challenging to keep up just using Excel.
For example, if you have a fleet of vehicles, and there is a change to the conditions around the leasing of those vehicles, the knock-on effects of that change are significant. This might be a lease modification under IFRS 16, which means that the accounting standard kicks in, requiring new calculations and possibly new journal entries and disclosure requirements. Trying to handle this in Excel, while keeping all financial statements up-to–date, can quickly become a nightmare.
While Excel is important and will always have its place for accountants, when it comes to leases and particularly the requirements of IFRS 16, a more robust solution is required.
In terms of IFRS software solutions, companies such as Trullion provide AI-powered automation that can actually scan source documents such as Excel spreadsheets or PDF files and extract key information such as lease dates and amounts, and then apply these to journal entries and even disclosures – providing one source of truth for all stakeholders, from accounting teams to company leadership, and including external auditors.
So when considering where along this spectrum your needs lie, it’s important to consider some key factors.
Key factors to consider when it comes to IFRS 16 lease accounting software
Audit Trail
Imagine scanning leases, and having accounting software suggest 1-click journal entries that are acceptable to your external auditors, while being automatically connected back to the source documents? This is the kind of experience that IFRS 16 lease accounting software can provide.
The best lease IFRS 16 lease accounting software solutions will generate 100% auditable journal entries and disclosures, and allow all stakeholders – auditors included – to gain visibility into the lease function and the associated information.
Data Security
Is the product SOC and SOC 2 certified by AICPA, the Association of International Certified Professional Accountants? Does the company providing the service have a robust privacy policy in place? Is the product used by recognizable names?
These types of questions can help give assurance in terms of the protection of your key financial data.
Costs
In almost all cases, the cost of IFRS 16 lease accounting software is a small fraction of the benefits that the lease accounting software provides, and there is a clear business case to be made for purchasing IFRS 16 lease accounting software, as direct return on investment (ROI) can be demonstrated.
Today, most IFRS 16 software as a service (Saas) solutions are very affordable, thanks to the minimal infrastructure required. What’s more, as these solutions are cloud based, there is no business interruption required when they are integrated into your system.
Support
When it comes to new software, it’s important for you to know you’re not out there alone. Support is critical, especially when first starting with a new IFRS 16 lease accounting software solution.
Support should be both accessible and knowledgeable, and should give you the confidence to go ahead and conquer IFRS 16 compliance.
Will it grow with you? Can it scale?
Modern Saas IFRS 16 lease accounting software solutions are completely and seamlessly scalable. So whether your company is made up of 5 or 50,000 users, the experience will be the same.
Watch out for older solutions that might not scale as well. These might seem tempting at first, but can result in a huge headache later down the line as your organization expands.
Company reviews
The best indicator of how good an IFRS 16 lease accounting software solution is, is third party reviews. These enable you to see how others have experienced the product, and any benefits or warnings that might be relevant. They are trustworthy and vetted, so you can relate to them with a high level of confidence.
Sites such as G2 and Capterra provide a great source on unbiased reviews, and so this is a key area to look out for when considering your IFRS 16 lease accounting software solution.
Choosing the right IFRS 16 software
As we’ve seen, the right IFRS 16 software will differ from company to company. It will depend on factors such as how many leases you have, what level of automation you want, and whether you’re looking for one part of an IFRS 16 lease accounting software solution, or a comprehensive end-to-end solution that takes care of all the heavy lifting for you.
Trullion provides everything you need when it comes to IFRS 16 lease accounting software. Streamline workflows, automate data extraction, and get a live 360° data image of your transactional workflow.
With Trullion, you have access to tremendous benefits. These include:
- Seamlessly meet IFRS 16 compliance requirements
- Accelerate your IFRS 16 adoption timeline
- Produce 100% accurate and consolidated reports in minutes
- Effortlessly trace your audit trail back to the source data
- Access simple reports and clear financial schedules
Trullion’s customers have given it amazing ratings on Capterra and G2, and Trullion has SOC 1 and SOC 2 certifications to give you the highest level of data protection.
Most importantly, by adding Trullion, you will be able to save massive amounts of time, reduce stress and friction, save money, increase visibility, reduce errors and be fully compliant with IFRS 16 requirements.
Interested in finding out more? Sign up with Trullion today at https://trullion.com/request-a-demo/
