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With IFRS 16, it is no longer required to treat financial and operational leases differently
from an accounting perspective and therefore this new leasing standard eliminates nearly
all “off-balance” sheet accounting for leases. The goal of the new lease accounting rules
is to increase transparency and to enable the users of financial statements to assess the
impact of their organization’s leases on the financial position and cash flow directly from
its balance sheet. To meet that objective, a lessee should recognize assets and liabilities
arising from a lease.
In this blog post, you can read what steps you need to take to fully comply with the new
Lease Accounting rules valid for accounting periods starting on or after 1st January 2019.
Basically, SAP RE-FX is a complete contract management solution. It enables you to set
up different types of contracts, manage the business partners of your contract in the tool,
keep track of critical dates in the contract life time and manage the contract conditions.
This is all managed in a central contract database, so all involved parties in your
organization will work on the same contract data. In this tool, the lease contract can be
valuated according to different GAAP standards, enabling you to perform your local and
your IFRS valuation. It calculates repayments, depreciations and the present value.
Based on these calculations, posting are made directly in the SAP FI and SAP CO modules.
Moreover, you can apply the multi-GAAP valuation as well for the ledger solution (New-
GL) as for customers using the account solution (Classic GL).
The SAP RE-FX module also enables you to add ‘Statistical Conditions’ to your contract
valuation. The use of those in the light of balance sheet valuation of lease contracts is
for recording initial costs incurred before the contract start, such as broker fees or
installation costs. When recorded as a statistical condition, those costs are considered for
the calculation of the RoU-asset value even though the invoice is already posted in
accounting in the regular accounts payable flow and thus has no influence on the future
lease liability.
How to start your own IFRS 16 compliance
project
Be aware that getting ready to comply with the IFRS 16 lease regulations is time
consuming and don’t forget that also comparing figures are requested. So my
recommendation is: “Start today instead of tomorrow”!
The following image shows the project roadmap we used at our customers to help them
comply with the new IFRS 16 lease accounting standard:
Project roadmap for having your SAP ERP system compliant with the new IFRS 16 Lease
Accounting standard
The most important difference is that US-GAAP still distinguishes between financial and
operational leases. Both leasing types require the creation of a RoU-asset and lease
liability. The different treatment can be found on the level of the depreciation for
operational leases under US-GAAP, whereby the lease expense will be presented as a
straight-line expense over the lease term.
Another important difference is the effective date, whereas IFRS16 will become effective
as of 1st January 2019 and ASC842 is effective for annual periods beginning after
15th December 2018.
Other differences exist on the level of transition approach, the definition of a lease,
exemption of low value assets, sale-leaseback transactions, subleases, etc. Please
contact me at sofie.machiels@pikon.com to know more about the other differences. I am
happy to help you.
Depending on the timescale of your own SAP S/4HANA strategy, you can already
implement SAP RE-FX in your current SAP ECC system. It is S/4HANA-proof and can
easily migrated to your future SAP S/4HANA system. If you are already migrating to
S/4HANA, the implementation of SAP RE-FX can also be a next point on your
implementation roadmap.