IFRS 16 is due to turn the fleet management industry upside down. Are you prepared for these changes? Here’s how you can ensure your fleet is fully compliant by 2019.
IFRS 16 is a major overhaul to the accounting standards for leases. The new accounting standard requires all leased vehicles to appear on your balance sheet. It’s crucial for fleets to prepare for the implementation of these changes. This will ensure a seamless transition from IAS 17 to IFRS 16.
Although IFRS 16 only takes effect from 1 January 2019, a lot of changes need to be implemented beforehand, so now is the time to get your fleet ready.
According to PricewaterhouseCoopers, “Changes to the lease accounting standard have a far-reaching impact on lessees’ business processes, systems and controls. Lessees will require significantly more data around their leases than before given the on balance sheet accounting for almost all leases. Companies will need to take a cross-functional approach to implementation, not just accounting.”
To find out more about IFRS 16 and how it affects fleet management, read our article The impact of IFRS 16 on fleet management.
Countdown to IFRS 16: is your fleet ready?
IFRS 16 impacts all lessees. To determine whether you’re considered a lessee according to the definition of a lease (and therefore need to comply with IFRS 16), you need to review your fleet contracts. This process requires a lot of reporting, technical and financial adjustments, so it’s a good idea to get a head start.
Establishing who in your team will be responsible for implementing these changes will ensure that nothing slips through the cracks.
What is leasing? (definition according to IFRS 16)
Under the new standard, a contract contains a lease if it:
- Depends on the use of an identified asset
- Conveys the right to control the use of such an asset (for example a branded delivery vehicle)
- The customer enjoys all of the economic benefits from the use of the asset during the lease term
- Whether the supplier has the ability to substitute alternative assets (if so, this is not considered a lease)
To determine whether a customer has the right to control an asset, the customer must be able to classify how, and for what purpose, the asset is used.
Lease data gathering and assessment
A substantial amount of data needs to be gathered and analysed to get ready for IFRS 16. Make sure you ask the right questions including:
- What is the lease agreement information?
- Are your systems or processes capturing the correct information?
- What is the impact on financial departments and statements?
- What discount rates will you be using for the different leases?
- Have you considered the ongoing optimisation of leases?
- What are some of the tax impacts involved?
- How will you inform stakeholders, board members and analysts of the financial impacts?
The earlier you prepare for IFRS 16, the easier it will be to get your fleet fully compliant by 1 January 2019. Don’t leave it to the last minute. Book an appointment with one of our sales consultants below: