As many of you may know, the new accounting standard applying to property and other operating leases is being introduced.
Known as AASB 16 or IFRS 16 this 'once in a generation' change to the way lessees treat operating leases in their financial accounts will have significant implications across virtually every entity and every industry. In particular, lessees of large property and property related asset holdings, such as retailers, will be most affected. Note, these changes will have minimal impact on Lessors.
In short, traditional operating leases such as property leases will no longer be treated as an expense. Instead, these leases will become Balance Sheet items, accounted for as Lease Liabilities and Right of Use Assets.
It is important that you familiarise yourself with this new accounting standard, assess its potential impact on your organisation and start to make preparations now. There are three phases:
- Getting Ready – running impact analyses by lease which will determine the AASB16 strategy, lease parameters, and finding of any missing data.
- Transitioning – each lease needs to be transitioned, on a particular day, to the new standard by creating the opening balances for Lease Liabilities and Right of Use Assets.
- Live Monthly Runs – generating monthly GL journals for Interest, Rent, and Depreciation.
Progenesis has also been actively preparing for this important change. We have consulted over many months with some of our major customers on the Getting Ready phase, which we are hoping to finalise over the next few weeks. The framework for the compliance module has also been established.
The Transitioning and Live Monthly Run components will follow after this initial phase.
Most of the work on this project is in the Getting Ready phase. This involves working closely with your internal accountants and external auditors.
The Standard AASB 16 / IFRS 16 module will be available free-of-charge to all Progenesis customers as part of the software annual licence fee. Any customised components that are tailored to your individual organisation will be an additional charge (if required).
This module will be a valuable tool in aiding our customers to be compliant with these new standards. It is being designed to handle a wide variety of scenarios and different operating lease types. It will also generate the relevant reports and GL journals.