While accounting standards are not an entity’s enemy, Sun Tzu’s famous quote from the Art of War at the top of this page is very apt when thinking about how to approach the adoption NZ IFRS 16.

This is because the effort and expertise required will vary entity-to-entity, depending on:

• The size and age of an entity’s lease population
• The nature of the items leased
• The nature of an entity’s Group Structure
• Which general accounting options an entity plans to elect
• Which adoption options an entity plans to use.

Refer to our specific BDO Cheat Sheet for more details.
 

As a result, a successful (and more importantly, compliant) adoption of NZ IFRS 16 is less likely when an entity:

1. Key lease-related information is unknown, and
2. An entity is unaware of the relevant application areas and “fishhooks” within NZ IFRS 16.

To refer to another apt quote from The Art of War: 

“Victorious warriors win first and then go to war, while defeated warriors go to war first and then seek to win”

The take away message here is simple: “Plan, plan… and then plan some more”.

 

 

Hindsight is a great thing for those that are following in the footsteps of those that have gone before them, which is great, as a number of entities have already adopted NZ IFRS 16 and their experiences are out there for the rest to learn from.

If you talk to those entities, they will almost certainly tell you that adopting NZ IFRS 16 is not as straight-forward as “running some numbers in a spread sheet”, even for what appears to be a relatively “simple” lease population at the outset.

This is because more often than not there are various judgements to be made, estimates to be determined, accounting options to be decided upon, and nuanced complexities to be worked through.

All of which will need to be worked through and resolved well before an entity is at the "spreadsheet stage" of their adoption journey.

For examples of these areas, refer to our specific BDO Cheat Sheet on this topic.

 

 

Adopting NZ IFRS 16 is going to be a different experience for each entity.

The challenges that NZ IFRS 16 introduces are a function on the number and nature of the leases that an entity has, and these will vary case-to-case, entity-to-entity.

Typically, that nature of the assistance our clients adopting NZ IFRS 16 involves one (or more) of the following service offerings:

(i) Approaches to tackle the adoption

General advice and support Understanding and interpreting NZ IFRS 16. Understanding the adoption methods allowed. Understanding general scope-out options allowed. How to group lease into similar portfolios, so that single discount rates can be applied. Application to group structures, and inter-company leases. Reviewing lease agreements, and extracting key lease information required.

End-to-end project management BDO IFRS Advisory formally project manages the adoption of NZ IFRS 16 on behalf of management, including: Project plan development Assigning roles and responsibilities Establishes Project Steering Committee (if required) Oversees roles and responsibilities assigned to BDO Ensures appropriate outputs and documentation is produced for management and external auditors.

 

(ii) Approaches to process the required accounting

End-to-end project management BDO IFRS Advisory formally project manages the adoption of NZ IFRS 16 on behalf of management, including:                  Project plan development Assigning roles and responsibilities Establishes Project Steering Committee (if required) Oversees roles and responsibilities assigned to BDO Ensures appropriate outputs and documentation is produced for management and external auditors.

Lease software solutions For entities with large, and/or more complex lease populations that require a more efficient and automated approach, BDO steps in with its BDO LEAD lease accounting product. BDO LEAD can be utilised by entities, either: As a licence, or As part of BDO’s Managed Leased Services outsourcing offering (where we do the “grunt work” of running the software on your behalf).  Visit the BDO LEAD webpage for more information.

 

(iii) Supplementary services

Discount rate determination In some cases, entities may needi to engage valuation experts to model, determine, and provide (auditable) support to the discount rates used by the entity in applying NZ IFRS 16 accounting. Were this is required, BDO’s Corporate Finance experts step in to provide these services to our clients.

 

BDO IFRS Advisory’s team have “been there, and done that”.

We know NZ IFRS 16… what the adoption process involves… where the pit-falls and trip-wires are… and ultimately, the nature and form of documentation and outputs that external auditors are expecting to be provided with by entities.

We are committed to ensuring that the entities we assist in their adoption of NZ IFRS 16 do so (i) efficiently, (ii) thoroughly, and (iii) in the most cost effective manner possible.

  

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BDO is the only large global accounting firm to publically offer a dedicated lease accounting software solution, both as an all-in licence, or as a managed service.

Accounting software solutions act to replace manual spreadsheet accounting, which may be necessary or preferred in instances where:

• There is a large lease population
• There are a moderate number of leases requiring recalculation over their term, i.e. property leases
• The entity is subject to external Audit
• There are group entities who also report under US GAAP, and/or
• There is limited people-power and resources to adopt a manual, spreadsheet-based approach.

Refer to the BDO LEAD page for more information.

 

 

BDO has a wide array of publications and other training material free available.

Below is an up to date one-stop-shop of this material for entities to access:
 

BDO Summary on a Page BDO’s high-level overview of NZ IFRS 16 requirements conveniently reduced onto all of three pages.

BDO Comprehensive publications BDO Need to Know BDO’s detailed 64 page publication covering the technical aspects of appliying (NZ) IFRS 16.   BDO IFRS in Practice BDO’s detailed 14 page publication building on the technical aspects of the above Need to Know publication, as well as also including various illustrative examples and commentary on issues currently being encountered in practice.

BDO IFRS Advisory “Cheat Sheets” BDO’s short, “punchy” publications related to specific aspects of applying NZ IFRS 16 Click on each topic heading below to download your own copy Nitty gritty of the new lease standard Adopting the New Lease Standard Applying Discount Rates under the New Lease Standard Getting Ready for NZ IFRS 16 Complexities with Property Leases (NZ IFRS 16) Ensuring your lease population is complete (NZ IFRS 16) Methods and Options to Adopting IFRS 16 Bank Covenants: Understanding the impact imposed by the new accounting for leases Accounting for Leases Acquired in a Business Combination Impairment Testing: COVID-19 and leases Manufactured inventories: Impacts of the new lease standard Accounting for sub-leases under the new lease accounting standard (NZ IFRS 16) COVID-19 related lease payment changes (NZ IFRS 16) Subsequent changes in leases (NZ IFRS 16)

Online training – BDO Rise Disaggregated training modules focusing on various specific aspects of NZ IFRS 16 application, including: High-level introduction Reccognition exemptions Identifying a lease Determining the lease term (lessee) Recognition and measurement (lessee) Sale and leaseback transactions Presentation Lessor accounting Transition

Financial Reporting Webinar Series Topics related to the application of NZ IFRS 16 covered in BDO’s financial reporting webinar series: Leases: On-going reassessments and modifications (Feb 2020) Leases: Issues determining the Incremental borrowing rate (Mar 2020) Impairment testing after the implementation of NZ IFRS 16 (Apr 2020) Effects of NZ IFRS 16 (and NZ IFRS 9, and 15) on business combinations (Jun 2020) Next steps after implementing NZ IFRS 16 (Oct 2020)

You Tube Video – with BDO’s Global head of IFRS Short 7 minute high-level overview of (NZ) IFRS 16 with BDO’s Global head of IFRS, Andrew Buchanan.