Over 1,000 public bodies are sleepwalking into non-compliance ahead of the IFRS 16 deadline, according to advisers MHR. It warns that the public sector needs to speed up its implementation of the leases standard before the April 2024 deadline to avoid the same challenges that listed companies faced in 2019.
Over half (55%) of listed companies indicated that the challenges brought about by the implementation of IFRS 16 were unexpected, according to a 2019 Global IFRS 16 Post-Implementation Survey conducted by PwC. And 72% believe their current lease management solution does not provide full functionality to cope with the accounting and reporting requirements.
‘Getting by’ with Excel is no longer an option
According to MHR, the lessons from the private sector that public bodies should heed are:
- Compliance takes longer than you think. The deadline for UK public sector bodies to become compliant was extended from April 2020 to April 2024 due to the pandemic and in recognition of the work needed to implement the standard. It is imperative that public bodies identify any roadblocks to minimise the risk of missing the deadline.
- Consolidate data and update your lease management toolkit. Data scattered around businesses and stored in inaccessible siloes made the IFRS 16 implementation process arduous for the private sector. This was compounded by the use of immature technology, leaving companies reliant on manual workarounds and spreadsheets. IFRS 16 compliance requires a new approach to lease contract inventories, processing, updating and recording. ‘Getting by’ with Excel is no longer an option.
- Data management is at the heart of achieving compliance. Organisations need to identify and classify all leases in play, often filling in gaps left by incomplete lease information. To carry out the relevant calculations, data must be collected, enriched and standardised: a difficult task if the information needed is scattered across different departments and in a range of formats.
The new standard will have practical implications beyond changes to an organisation’s financial statements, and implementation is not just an accountancy concern, but also a huge data management challenge.
