How to Optimise Your Year-End Processes With LOIS

As financial year-end and audit season approaches, companies should look at ways to optimise their reporting and prepare for this time. Quadrent, in collaboration with Grant Thorton, recently hosted a webinar outlining what auditors will be pinpointing this audit season, how to optimise your year-end reporting and what a good IFRS 16 year-end process should include.

View the webinar recording here, and keep reading below for a summary of what was discussed.

Auditor focuses for FY23

This reporting period's key audit focus areas are split across the regulators and organisations. Under the regulators, such as the Australian Securities and Investments Commission (ASIC), auditors are under increasing pressure to ensure their audit quality is sound. This flows onto companies, where auditors are recommending changes to improve reporting quality. These changes include improved documentation, ensuring complex accounting positions are documented properly, and that there are systems to report these accounting positions. 

For companies, auditors are also recommending that companies make better disclosures, particularly around the impact of uncertainties and risks such as macroeconomic change and ESG reporting factors. Similarly, the new insurance accounting standard, IFRS 17 (where applicable), should be captured for contracts that include non-financial conditions. Finally, post-adoption IFRS 16 complexities persist, and companies should be looking for ways to continually improve how they document, maintain and adjust their leases, with a focus on system automation and reducing instances of manual adjustments within these processes.

Areas you could be overlooking in your IFRS 16 process and compliance

With IFRS 16 in effect for over four years, there are key areas that companies are overlooking that should be addressed to optimise their IFRS 16 processes. Some of the key areas that companies are overlooking in their IFRS 16 process include the following:

• Ongoing post-adoption IFRS 16 complexities: Spreadsheet-based systems are starting to break down due to the manual nature of these systems and improper and inefficient approaches to lease modifications.
• Documentation and positioning papers: Maintaining an audit trail over how a company’s leases have been managed and changed over time is critical. If your company hasn’t reviewed its policy and positioning papers since IFRS 16 came into effect, now is the time to address this.
• Inefficient processes: Given IFRS 16 has been in effect for over four years, there is a range of best practice lease management processes and systems available that companies should implement if they haven’t already. This helps to address the risks that an inefficient IFRS 16 process imposes, including incorrect IBR calculations and lease modifications, difficulty maintaining compliance, disjointed data flow across the company, and a lack of visibility and control over the various assets that a company holds.
• Understanding the advantages of leasing in an ever-changing macroeconomic environment: Leasing allows companies to source the assets they need without putting a dent in their cash flow, while providing funding diversification. And for companies that lease a range of assets, from property to devices, compliance becomes increasingly important. By using a lease management system to store and manage all lease data, compliance not only becomes more efficient, but it provides data that can be used to meet and support claims made in ESG reporting, where applicable.

Common IFRS 16 process inefficiencies

In the current environment with staff turnover and capacity challenges, companies are having difficulty making strategic changes that can deliver financial and operational benefits. However, process inefficiencies are causing some of these capacity challenges. Taking some time to optimise and automate lease management systems and processes can address capacity challenges and make more time available to invest in strategic initiatives. By implementing efficient and robust lease accounting and management systems, companies enjoy better reporting accuracy, faster reporting, fit-for-purpose systems that work now and into the future, improved data flows across different functions (e.g., finance, property, procurement), and best practice lease modification, judgement and calculation practices.

What a good IFRS 16 process should include

There is a range of factors that should be addressed in a good IFRS 16 process, particularly as manual and spreadsheet-based systems begin to show their faults, requiring manual adjustments and burdensome manual maintenance. The first part of establishing a thorough IFRS 16 process is choosing and implementing a fit-for-purpose system. This system should make compliance simple and efficient, provide integrations with your ERP and accounting systems, be user-friendly, add value to your lease management processes, and provide data insights that drive stronger commercial decision-making. 

Further, a strong policy overlay with well-documented processes and policies, such as how to calculate incremental borrowing rates (IBRs), lease modifications and other key lease accounting decisions, should be implemented. Having these two things in place — a good system and strong policy overlay — allows for better synergy and data flow across a company, a strong return on investment (ROI), and the tools and information to continuously review and improve your lease management processes. For example, a current Quadrent customer reduced their monthly IFRS 16 review process from five days to one day by implementing LOIS to automate and better manage its IFRS 16 processes.

Get organised for year-end and audit season with Quadrent

Companies have gone through a period of rapid change throughout COVID-19 and the macroeconomic changes and challenges that have followed. And with IFRS 16 being in effect for over four years, companies should be looking to optimise their year-end processes and proactively address auditor focuses if they haven’t already. By taking the time now to ensure your lease management systems and processes are efficient and robust, you can realise a range of strategic, financial and operational efficiencies that compound over time. 

Quadrent works with businesses helping them to manage their leases and improve IFRS 16 compliance with their lease accounting solution, LOIS. With a team that has in-depth leasing knowledge and specialised accounting backgrounds, we’ll help you get the most value out of your assets.
 
To optimise your year-end processes and leverage your data for better commercial decision-making effectively with Quadrent, click here for more information.