1100 public bodies sleep-walking into non-compliance ahead of IFRS 16 deadline
In April 2024, the International Financial Reporting Standard for lease accounting (IFRS 16) will come into for force for every organisation in the public sector, leaving over 1100 bodies at risk of non-compliance.
With over half (55%) of private sector organisations having already struggled with the challenges of complying, and nearly three quarters (72%) believing their current lease management solution does not provide full functionality to cope with the new accounting and reporting requirements, the challenge for them was abundantly clear.
As such, MHR – the HR, payroll and finance expert – has today outlined the vital lessons public bodies should heed to avoid falling foul of the same colossal challenges. These include:
- Becoming compliant will take more time than you think: The deadline for UK public sector bodies to become compliant was extended from 1 April 2020 to 1 April 2024 in response to the pandemic. The decision to delay implementation was in recognition of the work needed to become compliant, and the significant challenge this would pose to companies. It is imperative that public bodies avoid any unexpected roadblocks to minimise the risk of missing the deadline. Preparing now is vital.
- Consolidate data and update your lease management toolkit: MHR’s experience showed that data scattered around businesses and stored in inaccessible siloes made the IFRS 16 implementation process arduous. This was compounded by the use of immature technology leaving firms reliant on manual workarounds and spreadsheets to achieve compliance. IFRS 16 compliance requires a new approach to lease contract inventories, processing, updating and recording. ‘Getting by’ with Excel is no longer an option.
- Effective data management is at the heart of achieving compliance: To achieve and maintain compliance, organisations will need to identify and correctly classify all leases in play, often filling in gaps left by incomplete lease information. In order to carry out the relevant calculations, data must be collected, enriched and standardised: a difficult task if the information needed is scattered across different departments and in a range of formats. This is just one example of how the new standard will have practical implications beyond changes to an organisation’s financial statements, and how implementation is not just an accountancy concern, but also a huge data management challenge.
Anton Roe, CEO of MHR, comments: “Implementing the right tools to seamlessly comply with IFRS 16 as early as possible not only means organisations are more likely to avoid risk, but it also means that they will have a greater opportunity to identify potential areas for cost reduction. Not taking appropriate action now could have significant implications down the line, and choosing the wrong provider and rushing the introduction of the best tech solution could endanger the functionality of your entire organisation.
“At MHR, we are pleased to have partnered with Wolters Kluwer to provide a best in breed lease accounting solution – ‘CCH Tagetik’ – which offers a robust and comprehensive package for handling all aspects of lease accounting under the new rules. Our solution for IFRS 16 compliance, which has been purpose-built for the public sector, can be delivered in as little as four weeks, and we are looking forward to working with organisations to ensure that the transition to these new standards is as smooth and effective as possible.”
