How do organisations implement the large-scale accounting change this standard requires? Some entities are turning to technology, others to outside consultants – and some are trying to make do with existing resources.
AASB 16 came into effect for most entities from 1 July 2019. Impacting almost all entities across the public and private sector, the new standard requires lessees to bring most leases on-balance sheet from 2019 – fundamentally changing the accounting treatment of leases by lessees. Not only is the new standard onerous in its requirements, it is also technically complex to operationalise. For organisations starting on this journey, here are a few tips to help ensure success, and common pitfalls to avoid.
These complex requirements have put increased pressure on finance teams who have to juggle the new requirements in addition to their BAU roles. Across the public and private sector, organisations often face workforce challenges when implementing AASB 16 processes.
Organisations need to be adequately prepared for the amount of time and resources required, not only in implementation but also moving forward. Increased effort is needed beyond the initial steps of identifying the complete population of leases, including embedded leases, and capturing data for them, to then performing ongoing reassessments and recalculations for existing and new leases as part of BAU.
Buy-in from other key business units will help to ensure successful change management, as the impact of AASB 16 will likely be wider than just the finance team. Due to the nature of the new standard, timely and accurate communication between finance and other functions, such as property, procurement, IT, Legal, Ops and even HR, is critical to ensure that new leases or changes to existing leases are reported accurately.
AASB 16 presents a complex problem for finance teams, and needs to be monitored for developments as interpretations continue to evolve. Adequate resourcing, identifying skills gaps, and deploying learning activities are all likely to be important considerations in any implementation project.
Many entities are choosing to outsource compliance activities or turning to technology to ensure existing teams aren’t stretched too thin. Employing specialised lease accounting models simplifies manual processes and reduces human error when performing complex calculations. However, where larger volumes of leases or reassessments are at play, entities are also assessing specialised lease accounting software with cloud-based solutions offering remote accessibility, which is vital for dispersed teams.
Stand-alone lease accounting software can also have its challenges. The process of system selection and implementation can be disruptive, with many entities investing a lot of time in configuration, testing and training staff. To avoid these challenges, many public sector entities are engaging third parties to handle the data capture, data entry, and ongoing calculations, thereby allowing their core finance function to focus on the judgemental aspects of the new standard.
Learn more about how KPMG’s Lease Hub can assist in reducing the disruption to your business and manage your AASB 16 lease accounting from start to finish.
The original version of this article appeared on The Mandarin website on 10 March 2020.