IFRS 16 is about achieving greater financial transparency. The only way an organisation can truly accomplish this is by safeguarding the integrity of its lease information. It’s simply not enough to be in a satisfactory position by ‘deadline day’, rather businesses need to be ensuring they are fully compliant at any given time, throughout time. But how is this done exactly? What are the steps that need to be taken? And what are the risks to data integrity within each of these? This blog series aims to answer these questions by breaking the compliance journey down into four identifiable stages.
In this blog, we’re looking at steps required to ensure compliance at the data abstraction stage.
If we are to imagine an organisation’s journey towards full compliance in four key stages, then it is stage two where the task begins to become more complex. This is because stage two is where lease information is ‘lifted’ or ‘abstracted’ from its original form and readied for calculation. The intense and repetitive nature of this task – and the complexity involved in calculation – means that the risks to data integrity are far higher than they are in the previous stage. It’s crucial that companies get this process in check because any error from this point onwards will inevitably produce skewed figures in final reports that mislead both CFOs and shareholders.
A large multinational will find this process to be particularly labour intensive, especially if they delegate data abstraction to employees across different sites. The ‘human’ route will naturally present greater risks to data integrity, as each IFRS project team will have its own method for completing the task and storing the data. If this procedure is not strictly controlled and coordinated under one ‘roof’, the likelihood of errors, duplication, miscalculation, and general oversights is magnified. With less than a year to go until the new standard goes live, it’s arguable that the ‘manual’ option is simply untenable for organisations with a complex portfolio of leases. One because it will simply take too long, and two because any extensive time spent correcting errors will inevitably put an embarrassed CFO in front of auditors, or worse still, picking up the bill for penalties incurred.
This predicament might instil trepidation in some finance departments, especially as there will be so many new faces joining the compliance process for the first time. Clearly, there’s a pressing need for a platform that automates the abstraction process while also having the capability to orchestrate the slew of incoming financial information. The good news is that artificial intelligence is now sophisticated enough to scan and differentiate pertinent lease information contained within a contract, without the need for human intervention. Our partner LEVERTON has been pioneering this technology for some time now, its deep learning platform is able to structure and manage corporate documents in more than 30 different languages. For companies looking to save time, money, and ensure the integrity of their lease data when becoming IFRS 16 compliant, this technology is nothing short of transformative.
Full compliance begins in earnest at the abstraction stage. Software and automation offers a peace of mind that manual labour simply cannot match at such a crucial time. It gives companies a platform to tackle the compliance journey together in a coordinated and collaborative fashion.