IFRS 16 blog: Third round has started and only the strongest software vendors are still in the game

2018 was a crazy year. All of us who had developed a solution to solve IFRS 16 challenge had meetings with potential customers one after another. All companies were in need and all were in a hurry. As always preparation had started just a bit too late, and the complexity of the issue was underestimated.

At that time there were a lot of different players in the market as there was a new regulation coming that forced large companies to do something – window of opportunity was open. Many wanted to get a share of that market and joined the race by developing their own solution, teaming up with another company, or by selling their expertise to solve this challenge with Excel.

After the initial race had ended and the standard entered into force, the second round started. Many of the solutions failed to deliver even the minimum level – fulfilling the requirements of the standard. This led to a peak in requests in Q2/2019. Companies who had difficulties with their solution started quickly to look for another one. At Fatman this meant that in 2019-2020 we almost doubled the number of customers using our IFRS 16 solution.

Now, when we have two full years of IFRS 16 behind us we can see the third wave starting. There are three different categories of solutions that are frustrating their users:

• First, there are systems, such as Excel sheets, that are too light and require too much effort from the user. As the number of contracts is growing, changes are happening to the contracts, and in some rare cases, new type of contracts or currencies must be calculated, one sees that Excel starts to be an expensive solution. There are direct and indirect costs to be paid in time used for the actual calculations as well as moving bookings to bookkeeping, consultancy needed for these processes, and the hassle this is causing in audits.
• Second, there are systems that are not comprehensive nor constantly developing. When the time goes on and more corner cases are happening to the contracts (such as sale-leaseback contracts, impairments, or handling of purchase options and corresponding fixed asset calculations), one starts to need double notes as all exceptions and thus differences between the system and bookkeeping must be documented.
• Third clear group consists of overcomplicated systems. These are typically ERP suppliers’ own or preferred solutions. These systems are not considering that leasing contracts are not handled in the financial department and/or headquarters. When a system is built for finance department only, one cannot reasonably distribute the use across the organization. However, there are always other people who need to handle these contracts in their work as well and may be the ones negotiating changes to these contracts, budgeting them, ending them, or similar. This leads to unnecessary double work and often errors in reporting.

There is one more trend that affects all these categories: business intelligence (BI) needs. More and more companies would like to see the information from the contracts and IFRS 16 bookings in forecasting and other cross-reporting, and internal reporting is often difficult or impossible. Comprehensive reporting in the software itself is not always sufficient as modern BI work requires combining data from multiple sources.

Fatman Frame is the leading solution for IFRS 16 reporting, and we are constantly developing the software according to trends and needs of the market. Additionally, comprehensive functionality combined with ease of use has always been the leading principles of our solution. Read more about our software https://fatman.fi/en/lease-management/

Hope to see You in our webinars to learn more on what we have been developing lately! Sign up here https://fatman.fi/en/fatman-organizes-webinar-series-to-introduce-simple-solution-for-comprehensive-ifrs-16-reporting/