A company that manages tens, hundreds, or perhaps thousands of lease agreements in a spreadsheet often has difficulty keeping track of the status of those agreements. However, in order to report according to IFRS 16, it's necessary to have an accurate overview of all agreements.
Companies that lack oversight of their leasing agreements and detailed financial information often struggle to answer auditor's questions, which means they need to devote more time to IFRS 16 reporting than they would like," says Richard Nilsson, founder of the tech company Leasify.
Major consequences
According to Daniel Wihlborg, Sales Manager at Leasify, it is possible to build a spreadsheet for lease agreements that is accurate. However, due to the human factor, there are usually minor errors that can have major consequences.
"If there is a manual error in the calculations in the spreadsheet you use, it can result in you reporting much larger amounts than you should. For example, imagine you have a fleet of about 50 cars that cost an average of $200,000 each. Since the leasing debt amounts to approximately $1 million, significant errors can occur if it is not calculated correctly," he explains.
Expensive to miss a deadline
It's not just incorrect figures that can drive significant costs for companies. Failing to keep track of deadlines for termination of agreements can also be expensive.
"Although the most common thing is for companies to miss deadlines for smaller lease agreements, such as coffee machines, it also happens that larger agreements are forgotten," says Richard Nilsson.
For example, if you lease equipment to the company for 48 months and initially pay a start-up fee between the delivery date and start date for two months, it increases the interest cost by 2 percent. If you miss the deadline to terminate the agreement and incur an extension of 12 months, the interest cost increases by as much as 10 percent. An object worth $50.000 will then be about $16.000 dollars more expensive.
"So, it can be a lot of money, which may be even more important to consider in these times when it's important to keep costs down," concludes Richard Nilsson.