Australian Accounting Standard

Article

Life after AASB 16: embracing the new normal

AASB 16

AASB 16, Leases introduced a new lease accounting model for lessees that requires substantially all leases to be brought to account on the balance sheet. This had a significant impact on organisations, particularly those with large or material lease portfolios due to the extensive data collection, process and system changes required to bring leases on balance sheet.

Beyond ‘day one’

While entities may have met their ‘day one’ reporting obligations through impact assessments or first-year disclosures, living with AASB 16 requires a change in the way that entities approach leasing.

We generally see entities fitting into one of three categories:
 

Remediate

On-going reporting requires additional work due to:

  • Incorrect data inputs;
  • Inconsistent application of rules, e.g. which discount rates to allocate;
  • Incomplete accounting policies; or
  • Lack of repeatability or reperformance of calculation models.
     
Beyond ‘day one’
Optimise

Entities may use AASB 16 as a disruptor to leasing operations to capture further
benefits through activities including:     

  • Streamlining or harmonising contractual terms;
  • Using insightful AASB 16 data to revisit strategic decisions, such as buy vs. lease; and
  • Establishing centres of excellence or shared service centres to centralise lease administration and lease accounting.
     
Innovate

Once remediation has been completed and operations have been optimised, entities may look to innovate ‘beyond today’ by leveraging robotics and automation for lease inputs, validation, and tracking.

This allows staff to focus on strategic and analytical decisions and focus on further innovation.
 

Utilising a long term solution

A long term solution automates lease accounting calculations, journals and disclosures, significantly reducing pressure on finance teams while also allowing them to focus on analytical and strategic activities.

A long term solution can come in different forms:

  • An in-house solution implemented by the entity, whether on-premise or SaaS; or
  • A managed or outsourced service, where another organisation provides AASB 16 outputs to the entity.

The best suited long term solution varies from business to business, depending on the size and complexity of a lease portfolio, strategy, budget, and other needs.
 

Setting up for success

A long term solution may require the following:

  • Accurate lease data inputs, including both contractual data and any accounting judgements;
  • Tracking of changes to lease data inputs after lease commencement, including changes to CPI rates, or assessments relating to contractual options;
  • Clearly defined accounting policies, particularly surrounding areas of judgement and complexity; and
  • A sustainable operating model, which best matches the AASB 16 solution with the entity’s resource availability and strategy.

How we can help

We have supported numerous organisations across the private and public sectors in their ‘end to end’ implementation of AASB 16. Our typical implementation approach has been shown below.

Deloitte White Paper on Technology Solutions for AASB 16 Leases
 AASB 16 Service Offering
Click image to enlarge

Our deep end to end experience allows us to help with the following:
 

Lease data remediation

Extracting the right lease information for an entity’s lease calculations. This can be performed manually, or for larger lease portfolios via use of proven, artificial intelligence software.
 

Accounting policy definition

Supporting entities with their definition of AASB 16 accounting policies, particularly with areas of complexity and/or those impacted by revised guidance from the IASB and AASB.
 

Operating model considerations

Collaboratively defining and understanding the operating model that is the right fit for an entity, based on the specific lease portfolio, resource mix, budget, and any other factors.
 

Long term solution selection

Compiling a list of business requirements and short-listed vendors that are the right fit for the entity’s defined operating model.
 

Technology implementation

Supporting the implementation of the entity’s chosen accounting solution. We also offer a comprehensive lease accounting service offering utilising our Deloitte Anaplan AASB 16 Application. Click here for further information.

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