IFRS 16 and the Death of Managed Services

When IFRS 16 went live in January 2019 companies scrambled for IFRS 16 compliance. Amongst the myriad of options available on the market was to go with an IFRS 16 managed service from a reputable accounting firm.

The reasoning behind this was sound due to several key factors:

1. The accounting firm had the technical expertise available for both transition and the setup of IFRS 16 calculations.
2. The accounting firm had the resource to ensure things could get done.
3. The accounting firm already had existing knowledge of the client’s business and process.

In most cases this meant that a move to an IFRS 16 managed service meant an efficient and effective transition process where the risks were minimized, and the client could be up and running effectively.

However, what many companies have subsequently realized is that many of these managed services were not actually fully developed systems or software products, but rather complex spreadsheets maintained by technical users.

This has meant that over time the managed service offering hasn’t developed any further, and as cost pressures grow (i.e., market rates contract) the skillset or expertise of the individuals running the service has decreased, as it is being run by more junior staff members or even outsourced offshore.

Therefore, rather than gaining even greater efficiency from having a scalable automated process, you are duplicating every part of the chain. This is because collating the information in a manner that the IFRS 16 managed service can ultimately process is entirely up to the client, and largely done through an inefficient manual process which wastes the client’s time.

For many industries, in particular the government sector, there has been a realization that the bulk of the data collection and data transformation is actually still done by the client and the service they are actually paying for is simply a calculator that is largely Excel based and definitely not tightly defined software.

The perceived benefits of having highly qualified technical experts run a company’s IFRS 16 calculations have been lost in the myriad of largely manual processes that are required just to get their journals back.

In addition, the benefit of having one centralized database for better ROI on leasing is lost and those operational insights from all this data is unavailable, with the entire focus to simply garner debits and credits for historical reporting.

Meanwhile, those companies with dedicated IFRS 16 software systems have seen further functionality develop to help the data flow and automate all aspects of the system, combined with intuitive interfaces, easy access and accurate outputs.

The way to check if a software system may be a better option than an IFRS 16 managed service is simple:

1. How much time is spent collating and transforming data into the managed service format?
2. How quickly is the managed service information provided?
3. Do you get insights or other information, other than journals and disclosures?
4. What is the cost?

By looking at all these factors and comparing them to a software system, the decision point should be truly clear. Within Quadrent’s business and client base, much of the client’s time prior to coming aboard with our LOIS lease accounting software solution was spent collating and transforming data. With a proper system this disappears, you control the timeframes, you have full access to all forms of useful information and your cost should be comparable if not cheaper.

Get organised and save time with LOIS, delivered by Quadrent

Companies should be looking to optimise their month-end and year-end processes, 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 processes and leverage your data for better commercial decision-making effectively with Quadrent, click here for more information.