Managing IFRS 16 Leasing Agreements to Avoid Negative Consequences

For financial executives, it is important to have a comprehensive overview of all leasing agreements that impact the company's finances, and to ensure that the agreements comply with the agreed terms. Failing to keep track of these agreements can result in unnecessary costs and decreased profitability, which can negatively affect the company's financial position in the long run.

Therefore, it is important to have accurate and continuous monitoring of the company's leasing agreements to avoid unwanted surprises and ensure a stable and profitable financial situation.

Critical control

As a financial executive, it is critical to have control over your company's leasing agreements, especially given the requirements imposed by IFRS 16 standards. For companies with large volumes of leasing agreements, it is common to use spreadsheets to keep track of information. However, even with a correctly functioning spreadsheet, errors can occur due to the human factor, which can have significant financial consequences.

Inaccurate figures in the spreadsheet can lead to significant financial losses for the company. For example, if you have a fleet of 50 cars that on average cost $20,000 each, an incorrect spreadsheet calculation can result in you reporting a much higher leasing cost than you actually have. It is also important to keep track of the deadlines for termination of agreements, otherwise, it can lead to extended contract periods and higher interest costs.

Answering auditor's questions

Companies that do not have a handle on their leasing agreements and details may struggle to answer auditor's questions and may require much more time to comply with IFRS 16 standards than is necessary. It is therefore important for financial executives to ensure they have a complete overview of all leasing agreements that impact the company's finances and to follow agreed terms. This way, unwanted financial surprises can be avoided and a stable and profitable financial situation can be ensured.