IFRS 16 Package
Manage lease liability and right-of-use assets per IFRS 16 — integrated with RE-FX.
IFRS 16 requires a lessee to show its leases on the balance sheet as a right-of-use asset and a lease liability. In many companies these leases are managed in spreadsheets, with the lease liability, right-of-use asset, interest and depreciation each calculated separately. The remeasurement required when a contract changes is error-prone, and audit and reporting become harder. The Conforcus IFRS 16 package manages leases in integration with SAP RE-FX; it calculates and posts the lease liability, right-of-use asset, interest and depreciation automatically in line with IFRS 16. Remeasurement on contract changes also runs inside the system.
Why leases are hard to manage in spreadsheets
Before IFRS 16, operating leases were kept off the balance sheet and lease payments were simply expensed. The standard brought these contracts onto the balance sheet and made a calculation that runs for the whole term necessary for each of them. At the start of the contract the lessee calculates the present value of the lease payments and recognizes that amount as a liability; the right-of-use asset is then built on that liability. In every subsequent period interest accrues on the liability and the asset is depreciated. Each contract therefore requires a separate calculation and posting for interest and for depreciation in every period of its term. As the number of contracts grows, keeping these schedules up to date in spreadsheets and consistent with the accounting records becomes difficult.
The greatest risk lies in contract changes. When the lease term is extended, the rent changes or the scope of the contract is reduced, the liability and the right-of-use asset have to be remeasured. In a spreadsheet this means rebuilding the existing schedule by hand, and the trail of the previous calculation is often lost. When the auditor asks which contract and which assumptions the period’s interest and depreciation came from, the answer is hard to give, and the data needed for the disclosures has to be compiled from separate spreadsheets.
How the package works with RE-FX and FI/AA
The package works in integration with SAP RE-FX (Flexible Real Estate) and FI/AA. Leases are managed in integration with RE-FX, so the contract information the calculation rests on sits in the same system as the accounting records. From these contracts the package calculates the lease liability and the right-of-use asset, builds the interest and depreciation schedules, and creates the related accounting postings automatically.
When a contract changes, remeasurement runs inside the system: the change is entered on the contract, and the liability and the right-of-use asset are recalculated on the current terms. Because the calculation stays in the system, the basis for the remeasurement can also be shown afterwards. The package also includes IFRS 16 reporting, and the data needed for the disclosures comes from the same calculations. It runs in multi-company structures.
What changes for finance and reporting teams
At period end the team focuses on the accuracy of the contract data instead of updating spreadsheet schedules. Because the liability, the right-of-use asset, interest and depreciation are produced from the same source, the amounts are consistent with one another and with the accounting records. Since remeasurement is no longer done by hand, the risk of error on contract changes falls.
On the reporting and audit side, IFRS 16 disclosures and reports rest on the calculations in the system. Because the system can show which contract an amount came from, disclosures and reporting are ready for audit.
Accounting policy decisions, and who the package suits
The IFRS 16 calculation rests on decisions the company has to make: how the lease term is determined, which discount rate is used, and whether the exemptions the standard allows for short-term and low-value leases are applied. These are accounting policy decisions, taken by the company together with its auditor. The package does not make them; they are defined during implementation, and the calculations follow them. The contracts in scope are settled at the same stage.
The package suits companies that have a large number of leases under IFRS 16 and currently track them in spreadsheets. It is aimed at CFOs, finance teams, and the teams responsible for reporting and audit. Because it runs in multi-company structures, it also suits groups that want to calculate the leases of their companies by the same method. The package has been implemented in several sectors.
Benefits
- Liability, right-of-use asset, interest and depreciation automated
- Error-free remeasurement on contract changes
- IFRS 16 disclosures and reporting audit-ready
Where it sits in SAP
Integrated with SAP RE-FX (Flexible Real Estate) and FI/AA; covers lease liability and right-of-use asset calculation, interest/depreciation schedules and IFRS 16 reporting. Runs across multi-company structures.
Who it is for: CFO, Finance, Reporting & Audit
Frequently asked questions
How does the suite work with SAP RE-FX, and does it replace it?
The suite does not replace RE-FX: lease contracts are managed integrated with SAP RE-FX (Flexible Real Estate). On the accounting side it works together with FI and Asset Accounting (AA). Lease liability, right-of-use asset, interest and depreciation are calculated and posted on this structure in line with IFRS 16.
How is remeasurement handled when a contract changes?
When the change is entered on the contract, remeasurement runs inside the system and the lease liability and right-of-use asset are recalculated on the current terms. The interest and depreciation schedule is updated for the remaining term. Because the calculation and postings stay in the system, the basis for the remeasurement can be shown in an audit.
Can IFRS 16 disclosures and reporting be produced from the system?
Yes: the suite includes IFRS 16 reporting, and the data needed for disclosures comes from the contract-level calculations. Liability, right-of-use asset, interest and depreciation are produced from the same source, so the reports are consistent with the accounting postings. The suite runs in multi-company structures, and reporting can be produced per company.
Does the package determine the discount rate and the lease term?
No. The discount rate and the lease term are inputs determined by the company’s accounting policy and the terms of the contract. Under IFRS 16 the discount rate is the interest rate implicit in the lease or, if that cannot be readily determined, the lessee’s incremental borrowing rate. How these inputs are assigned to contracts is defined during implementation, and the package performs the calculation on them.
How do we start with contracts that are currently tracked in spreadsheets?
The contracts in scope and the transition date are settled during implementation, and from that date the calculations run in the system. Before the transition it is important to review the contract data, that is, the terms, payment amounts and payment dates, because the accuracy of the calculation depends on it. The existing spreadsheet schedules can be used for comparison at this stage.
Is anything different for companies reporting under TFRS 16?
TFRS 16 is the Turkish equivalent of IFRS 16, published by the Public Oversight Authority (KGK), and contains the same measurement and recognition principles. The calculations of lease liability, right-of-use asset, interest and depreciation therefore follow the same logic under either name.