IFRS16 business integration challenges

The new reporting standard on lease accounting IFRS 16 will be effective as of 1 January 2019.


This new standard requires lessees to recognize nearly all leases on the balance sheet which will reflect their right to use an asset for a period of time and the associated liability to pay rentals. With the deadline of IFRS 16 adoption looming, we would like to share some of our project experiences. IFRS 16 is not just an accounting topic, but requires complete business integration to meet all challenges.

What do we see as business integration challenges? One of the main business integration challenges is Data gathering.

As also discussed by Marco van der Kooij , Wolters Kluwer CCH Tagetik, gathering all the required data to support IFRS 16 can be very time consuming and includes the aspects of contract completeness and Data assessment.


The gathering of all relevant contracts can be very time consuming and is often underestimated. For the accurate calculation of lease liabilities and right of use assets, all relevant data points have to be identified. This requires the assessment of all base and side agreements, as well as all amendments. Our experience is that contracts might be widely spread within the companies due to different responsible divisions, different entities or different countries. Hence, the process of identifying leases and embedded leases and the gathering of all contracts can therefore be very complex. This requires not only the cooperation but also a common understanding and training of IFRS 16 of all related parties throughout the countries, but also departements, like Real Estate, Procurement, IT, etc..

Besides the contract completeness, the identification of the data points relevant for the accurate calculation of lease liabilities and right of use assets might be complex. Contracts may include complex payment schedules with various step rents, variable lease payments and/or service components. In addition, renewal, termination and/or purchase options need to be assessed. Besides the data points that need to be derived from the contracts and amendments, the appropriate discount rate needs to be determined for the calculation of the lease liability. When the interest rate is implicit in the contract, this is used, otherwise the incremental borrowing rate needs to be determined. Factors that need to be considered for each lease are the term of the lease, the security of the borrowing, country risk  and the credit-rating of the lessee.


Our experience is that the identification of the relevant data points, the assessment of options and the determination of the discount rate requires the close cooperation within the various departments (e.g. also including Treasury), but also a lease engine that covers all relevant aspects.


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