How Lease Accounting Software Adds Value For Accountants Grappling With IFRS 16


For anyone wondering about the impact of changes to the IFRS 16 standard, the International Accounting Standards Board offers a neat summary; by its calculation, listed companies using IFRS 16 or US GAAP have approximately $3 trillion of off balance sheet lease commitments that will now need to be accounted for. And while the benefits of these changes are expected to outweigh the costs, this will be little consolation to accountants and other professionals expected to make a seamless transition to the new standard.

Thankfully, these same financial professionals can now access an ever expanding range of lease accounting software specifically addressing IFRS 16 and its wider impact on a company’s financial reporting. The best examples of these have been designed by experienced accountants with first-hand experience of the challenges around regulatory risk and compliance in IFRS 16. As such, they’re already making a valuable contribution to the enormous workload involved in the transition to the new IFRS 16 standard.

Examples of where these tools are having an impact include:

  • Automated calculation: By far the most challenging component of the new standard is the need for accountants to accurately calculate the dizzying array of leases that until now, have been footnotes to the balance sheet. Lease accounting software uses the relevant numbers in a contract such as payment frequencies and discount rates to generate all of the relevant journal entries.
  • Contract extraction: Lease accounting may not be the first thing that comes to mind when you hear the words ‘artificial intelligence’ but a select band of lease accounting software tools are leveraging AI to empower the accounting profession. By extracting relevant data from the often cumbersome lease contracts and importing that data to spreadsheets and journal entries, these AI-powered lease accounting tools are easing the load for everyone that has to contend with changes to IFRS 16.
  • Transparency: One of the principal motivations cited for the introduction of IFRS 16 is balance sheet transparency. This equally applies to lease accounting software, which seeks to provide everyone involved in the reporting process with full visibility of the lease accounting procedures used. As an example, in a few of the AI-powered lease accounting tools mentioned above, the numbers that underpin the calculations for all journal entries can be traced directly back to the relevant contract in its original form, allowing auditors to see when, how, and why the journal entry was made.
  • Compliance: As any experienced finance professional will attest, honest human errors in accounting often translate to costly breaches of compliance. It is therefore not a huge leap to suggest that the increased complexity as a result of changes to IFRS 16 raise the risks of compliance breaches for CFOs, CPAs, and their finance teams. Most of the lease accounting software now available has been designed with this in mind, ensuring that users are compliant in terms of amortization schedules, disclosures, journal entries, and more.
  • Collaboration: The fact that most of the lease accounting tools on the market are now cloud-based means that collaboration is now easier than ever. The days of duplicated Excel files with difficult-to-find changes are now a thing of the past. Users, be they CFOs, CPAs, or auditors, can now work in tandem ensuring more accurate results and a significantly reduced workload. 557

Thanks to a sophisticated range of lease accounting software now at their disposal, accountants everywhere can leave manual lease accounting – and the compliance risks that presents – behind them. Changes to the IFRS 16 standard represent an historic shift in accounting practice, affecting everything from office and real estate to company vehicles and equipment. Lease accounting software is empowering finance professionals to confront this challenge head on, providing them with the tools they need for fully transparent and compliant reporting.

The views expressed in this article are those of the authors and do not necessarily reflect the views or policies of The World Financial Review.