IFRS 16 – what some are calling ‘the biggest accounting change ever’ – comes into effect for annual reporting periods starting on or after 1 January 2019, and the chances are that it will impact your business significantly.
That said, it’s important that all the relevant stakeholders in your organisation are made aware of what the change in regulation means, how it affects your business, and how it impacts their individual responsibilities.
For your transition to IFRS 16 to be as successful as possible, you’ll need to put together an effective lease accounting implementation project made up of key players. In this article, we’ll take a look at the departments and people you should involve in your lease accounting implementation project.
Which Departments Should Be Involved In Your Lease Accounting Implementation Project?
While your lease accounting implementation project should be led by a finance head (Such as the CFO), it’s important to remember that the new lease accounting standards stipulated by IFRS 16 are a company-wide issue. As such, you’ll need to assemble a team that includes key members from across the organisation.
Technical AccountingThe technical accounting department’s responsibilities include evaluating and interpreting the impact of new accounting standards, selecting lease accounting software, developing processes together with policy strategy, and identifying and assessing controls.
FinanceYour finance department is arguably impacted most by the new regulations of IFRS 16, as they’re responsible for implementing the new standards on financial statements and note disclosure within SEC deadlines. Make sure that you’ve selected a representative who is able to communicate all the relevant information to their team effectively and ensure that the new regulations are well understood.
Risk ManagementYour risk management team can’t make any kind of sensible assessment of risk if they aren’t aware of the new regulations, so it’s vital to include a representative from this department too. They need to understand the potential impact to assess the risk!
ProcurementBecause procurement is responsible for negotiating the costs and terms of all new leases, purchases and renewals, it’s essential that they’re included in your lease accounting implementation team. Your procurement department should play a key role in reforming processes, and as such may end up taking ownership of the project. The way your organisation evaluates the benefits of leasing may need to change.
TreasuryThe treasury department is usually responsible for your organisation’s financial strategy and leasing policies. Their objective is to ensure that your company is making optimal use of its cash and any external financial sources through a standardised lease-versus-buy analysis. Again the benefits, risks and impact may change the view on leasing as result of the implementation of IFRS 16.
Systems ITYour IT department is responsible for specifying the requirements for upgrading existing systems like ERP, asset management, procurement and real estate, as well as purchasing new and specialised lease accounting software.
Corporate TaxThe corporate tax department will be responsible for assessing the effects of the new IFRS 16 standards on sales, property and income taxes at local and national levels, as well as providing the requirements for which accounting data is needed, and when, in order to remain compliant.
Human ResourcesYour HR department needs to keep tabs on the impact that new standards may have on compensation agreements, as well as on the return on assets affected by the new regulations.
Fleet ManagementFor businesses with large vehicle fleets, it’s a good idea to include your fleet management group, as your fleet could account for a significant portion of your lease agreements.
Real EstateIf your business has a large real estate portfolio, it’s a no-brainer to include a representative from your real estate department as part of your lease accounting implementation team. Your real estate department is your primary source for property lease terms, payments and targets, and has a deep understanding of complex sublease and sale-leaseback arrangements.
How To Staff Your Lease Accounting Implementation Team
Once you’ve decided which departments should be involved in your lease accounting implementation project, you’ll need to appoint project owners:
The executive sponsor is arguably the most important role in your implementation project as they will be responsible for championing the implementation project and communicating the rationale for your lease accounting initiative to the various stakeholders involved. In the initial stages of your lease accounting implementation, the executive sponsor will help secure the necessary budget and resources, and at later stages will help clear any obstacles that could compromise project milestones, targets or goals. The executive sponsor should be highly engaged and motivated in order for your accounting implementation project to have the best chance of succeeding.
In most cases, the Financial Controller or Chief Accounting Officer is the best fit for this position, but the Chief Financial Officer is an even better option, provided their time and attention can be secured.
The executive sponsor and project manager work together on an accounting implementation project, but the project manager’s role has more to do with the tactical and operational aspects. The project manager is responsible for hosting recurring meetings, sharing regular status reports and monitoring any risks that could impact the project. They will also develop the initial implementation plan, onboard new team members and prepare for executive meetings.
The ideal project manager for your lease accounting implementation project should have some knowledge of finance and accounting, as well as experience with a global, cross-functional initiative.
Is your organisation prepared for the reality of IFRS 16? Download our free guide for everything you need to know about lease accounting compliance at the link below.