With IFRS 16, which will be mandatory from January 2019 onwards, operating leases, to which an exception of short-term contracts or low-value goods will not apply, will appear on the balance sheet
At LOYIC we have seen, over several months, a great revitalisation of the Real Estate sector. The strong entry into the Spanish market of SOCIMIs and the regulatory change established by the new IFRS 16 LEASE standard drive forward different initiatives and a great interest in a company like ours, expert in solutions for the management of real estate assets.
In January 2016, the International Accounting Standard Board issued a new lease contract accounting standard called IFRS 16, which will be mandatory from January 2019 onwards. This standard will have a large impact on the way management and accounting are considered for rents for large leaseholders.
The model will entail the recognition, for each property leased, of an asset (right to use the property) and a liability (future instalments to be paid). With IFRS 16, operating leases to which an exception of short-term contracts or low-value goods will not apply, will appear on the balance sheet, so the financial statements will be, to a large extent, different from what we currently know.
Therefore, the need to implement or adapt an IT system that is capable of storing and managing all the relevant information of the contracts, accounting under the new model adapted to aspects such as: changes in benchmarks (CPI, EURIBOR, etc.), changes in the estimated duration of the lease, etc.
A vital part of the implementation project to adapt to the standard will involve the analysis of current systems and the implementation of a new information system with the capacity to apply IFRS 16.
SAP has already prepared its product to comply with the regulations based on its solution in the SAP Real Estate Management module. On 12th September, LOYIC was in Berlin attending a specific workshop for the SAP RE-FX Lease Contract Management solution.
In this sense, LOYIC, with high expertise in SAP RE-FX implementation projects for real estate management in the retail sector, with clients such as fashion chains, shopping centre administrators and outlets, is currently participating in various analyses of models for the Comprehensive Management of Leases in this sector.