IFRS 16 is an accounting standard that affects how companies report leasing agreements in their financial reporting.
Implementation of IFRS 16 can pose a challenge for companies in terms of compliance. Here are some challenges that may arise:
- The complexity of the standard: IFRS 16 is a complex standard that requires a thorough understanding of its requirements to ensure accurate accounting. It can be challenging for smaller companies or those lacking resources to hire specialists.
- Data collection: Implementation of IFRS 16 requires companies to collect and review information on all leasing agreements, including duration, rental costs, and the specific terms of the agreements. This can be challenging for companies with many leasing agreements or those using different leasing administration systems.
- Implementation of new systems: Implementation of IFRS 16 may require new systems or updates to existing systems to handle leasing agreements in a way that meets the standard's requirements. This can be a challenge for companies with limited IT resources or competencies.
- Impact on financial ratios: IFRS 16 can affect a company's financial ratios related to leverage, profitability, and cash flow. It is important for companies to understand how the standard affects their ratios and to communicate these effects in an easily understandable way to their stakeholders.
- Updating systems and procedures: Companies that already have established systems and procedures for accounting for leasing agreements may need to update them to meet the requirements of IFRS 16. This can be time-consuming and resource-intensive. Therefore it is importan to ask how your system supplier works with development of system in general but also in combination with changes of accounting standards an laws.