Alongside guest speakers from the Ernst and Young and Tassal, Quadrent hosted a webinar to discuss the current market challenges drive by IFRS 16 and COVID 19.
Quadrent was joined by John Askham from Ernst and Young and Kim Wiggins from Tassal. John is a Director in Financial Accounting Advisory Services, assisting many public and private sector clients with the practical aspects of IFRS 16. Kim is the Finance Manager at ASX listed Tassal Group and has been at the forefront of their successful transition to account for IFRS 16.
Here are some key insights from the webinar;
- Stemming from the challenges of COVID-19 – there is a greater focus on the requirements for liquidity and decisions are now being made for Capex programs and potential alternative funding options. Leasing is increasingly being used as solution to sure up balance sheets and liquidity levels.
- Australian enterprise clients appear to be managing the challenges ahead of the curve, but the market is still cautious. Business leaders that are making fast decision to manage the short to medium term are set to navigate the challenges better.
- Non-traditional product classes such as software licenses are now being financed under an operating lease structure. Having access to additional credit lines for funding is always useful, particularly if it doesn’t attract additional fees.
- John from EY discussed that the growth of leasing leads to other considerations concerning IFRS 16 and the significant differences between accounting for Operating leases and Finance leases. Determining what is a finance or operating lease can be a complex and a fine judgement, and the complexities have been underestimated by the majority of large organisation.
- 55% of clients experienced more complexity than they were expecting and approximately 40% are likely to replace spreadsheets with a system. Read more about this in our blog.
- As discussed by Kim from Tassal, the key to a good transition to IFRS 16 includes; effective planning and data management, and utilising specific software rather than spreadsheets which enabled his business to easily run scenarios and produce reports.
- The IASB has released a simpler method for accounting for COVID related rental concessions which is to reflect it as a “negative variable concession” – which is not considered to be a formal lease modification. There are some rules around whether this can be applied which can be seen in slide 23.
- The complexity of the standard has been underestimated by the majority, and technical advice can save organisations time and money and start you on the right path.