Today, we are 11 months away from the impending implementation deadline of January 2019, and based on our experience, the levels of lessor readiness varies considerably.

Unfortunately it’s not just a simple matter of overall readiness, it’s not good enough to say “We have a project plan, and we know what we need to do…..” I say this because whilst what needs to be done is conceptually straightforward for a competent finance professional, the devil, as usual, is in the detail.

Our experience points to a number of key challenges in the minefield that is the adoption of IFRS 16, which include but are by no means limited to:

1. Method of adoption.

You will need to choose whether you adopt the standard for future reporting periods only or on the basis of fully-retrospective restatement. The option you select will have a massive knock-on impact on what data is required and the scale of resource and financial costs associated.

2. Data, data, and more data….but is it good quality data?

You will need to collect detailed data on each lease to be restated, and potentially every amendment, renewal and any change related to the lease. Questions to be answered on data include: Where is the data located physically or digitally?, how robust, reliable, accurate and complete is the data? How confident are you that your data collection and validation is going to deliver what is needed to support the method of adoption you select?

This in my opinion, is the biggest potential risk in this type of project, and unless you have both a solid handle on what you need, and have ensured that there are stringent quality control processes built into the collection and data capture process, you put the success of the project in jeopardy.

If you have concerns about the completeness or quality of your data, then the first question about method of adoption may need to be reviewed; especially if you elected to adopt the most demanding and data dependent fully retrospective method.

3. Systems – selection | implementation | adoption ….

The world of options is quite diverse, from ERP add-on modules/upgrades to the polar opposite end of the spectrum where you have the analyst in the corner, putting together a quick spreadsheet. Irrespective of which of these you select, the process of implementation, loading data, testing and validating the results can be exceptionally demanding and time consuming.

4. Data/System compatibility….

You may have thought you had the data collection and quality aspect of the project under control. However the extent to which the data is in a form that can be processed by the solution you have opted for can only be achieved by careful and pre-meditated design. This can place a substantial unplanned burden on the team to transform or enhance the data set, which has a corresponding impact on the delivery timetable and your ability to get the project delivered on time.

5. Underestimation of the resource demands!

IFRS 16 is not the only show in town, and given the above cautionary points, it will be competing for limited internal resources. If you have fallen foul of any of the above challenges, then the resources you have allocated are not likely to be sufficient.

Over the last six months we have seen increasing interest in clients looking for support and solutions to this issue which is by no means a one-size fits all solution. We have as a consequence teamed up with one of the leasing industry’s leading experts, David Maxwell from Classic-Technology. Working with David, and his “Classic” lease evaluation software, we have developed a clear understanding of the practical challenges our clients face and built up extensive experience in delivering effective solutions.

We will be running a seminar on the 21st February to talk about our experiences in the context of the ‘minefield’ and what we have done to support our clients in addressing these issues and getting their projects to a successful conclusion. Click here to book your place for our seminar

In advance of that we are looking to our network of contacts to do a small survey to assess the reality of IFRS 16 readiness. The more contributors that take part, the more relevant the insights and observations will be so please feel free to join in, and share the link with your own network. All data will be treated anonymously and the analysis of the aggregated results will be shared with all contributors.

Click to complete the survey