IFRS 16 and Year-End: Some Useful Information From the Accounting Bodies

Another year-end is here for many corporates in Australia and New Zealand. Therefore, I thought it would be worthwhile to outline several key considerations for your year-end preparation.

The External Reporting Board (XRB) in New Zealand has recently developed an IFRS 16 guide for the key areas to consider for corporates in years after first-time adoption. Although a New Zealand IFRS 16 guide, everything is directly applicable to Australia. You can access the XRB IFRS 16 library here - https://www.xrb.govt.nz/standards/accounting-standards/for-profit-standards/standards-list/nz-ifrs-16/

With several years having passed since the transition to IFRS 16 we have found that many corporates are still uncertain on what the key process should be to ensure that their accounts are accurate. As per the XRB IFRS 16 guide, here are a couple of key items to consider:

New Leases

The identification of new leases and the collation of the correct information seems like an obvious area. However, a common problem coming into year-end is that new leases are not correctly identified and then they are picked up in audit substantive testing. An easy way to counter this issue is to simply review the appropriate GL codes within the profit and loss to look for “lease like” transactions.

Assessments and Modifications

The second key area is a reassessment of existing leases and the modifications of leases. This is because it is a complex area of IFRS 16 and it is very easy to overlook or calculate incorrectly. Having a lease accounting software system should mean that the calculations will be correct as long as the correct variables are entered. However, there is still the importance of proper objective assessments, in line with your IFRS 16 policy. To that end, the XRB IFRS 16 guide is very comprehensive, the graphical representation around changes of leases and modifications is an excellent overview.

IFRS 16 Frequently Asked Questions

Lastly, the XRB IFRS 16 guide includes several handy FAQs, including on impairments and disclosures. Again, having a lease accounting software system will make disclosures and impairments relatively simple. However, we would note that all of these require judgments, and these judgments should be both documented and within policy.

As always, if you have any questions around IFRS 16, do reach out to our LOIS lease accounting software team. All our team members are CA qualified accountants, and lease accounting experts rather than software developers. Therefore, we are the only company in the sector offering lease accounting expertise to support and provide advice for a lease accounting software solution.

You can access the XRB IFRS 16 library here - https://www.xrb.govt.nz/standards/accounting-standards/for-profit-standards/standards-list/nz-ifrs-16/