Is Your IFRS 16 Lease Management Solution Costing You More Than It Should?

What exactly is IFRS 16 and why does it matter to your bottom line?

IFRS 16 is the international accounting standard that revolutionised how companies report their leases on financial statements. Gone are the days of off-balance-sheet lease arrangements – now virtually all leases must appear on your balance sheet as both an asset (the right to use the leased item) and a liability (the obligation to pay for it). This seemingly simple change has profound implications for your company’s financial ratios, debt covenants, and operational costs.

The impact on businesses has been substantial. According to research by PwC, the average FTSE 100 company saw a 22% increase in reported debt following IFRS 16 implementation. For mid-sized companies, implementation costs typically range between £50,000-£150,000, while larger enterprises with complex lease portfolios often invest £250,000+ in compliance solutions. These figures don’t even account for the ongoing maintenance and administration costs that continue year after year.

What many finance leaders don’t realise is that inefficient IFRS 16 compliance doesn’t just affect reporting – it drains valuable resources from your organisation that could be better employed driving growth and innovation.

5 hidden costs of inefficient IFRS 16 lease management solutions

When evaluating IFRS 16 solutions, the obvious expenses like licensing fees get all the attention. However, the real budget-killers are often lurking beneath the surface:

• Staff training time: Complex systems require extensive training. Research shows companies spend an average of 120+ hours per finance team member on initial IFRS 16 system training, with refresher training needed each quarter. That’s valuable time your finance professionals could spend on strategic initiatives.
• Integration challenges: Many IFRS 16 solutions don’t play nicely with existing financial systems. EY reports that 67% of companies face integration issues, often requiring expensive custom development or manual workarounds.
• Manual data entry burdens: Inefficient solutions demand continuous manual data input, creating a persistent overhead cost. Companies report spending 15-20 hours per month on data entry for every 100 leases.
• Audit preparation: When your IFRS 16 system lacks proper reconciliation reports and audit trails, your team scrambles during audit season. This can double or triple preparation time and potentially increase external audit fees.
• Ongoing maintenance: Many solutions require constant attention to remain accurate. According to Deloitte, companies typically dedicate 0.5 FTE (full-time equivalent) staff just to maintain IFRS 16 compliance.

How to evaluate if your current IFRS 16 solution is overpriced

Not all IFRS 16 solutions deliver equal value. Here’s a practical framework to determine if you’re overpaying:

Start by benchmarking your total cost of ownership against industry standards. For SMEs managing 10-100 leases, total annual costs (including software and internal resources) typically range from £10,000-£30,000. Mid-sized organisations should expect £30,000-£75,000, while enterprises with complex portfolios might spend £75,000-£150,000. If you’re significantly above these ranges, it’s time to investigate alternatives.

Next, assess these key performance indicators that signal inefficiency:

• Time required for month-end closing (should decrease by 25-30% with efficient systems)
• Number of manual adjustments needed quarterly
• Frequency of discrepancies identified during audits
• Hours spent on data entry versus analysis
• Ability to handle contract modifications without external consultation

If your current solution fails on multiple indicators, you’re likely overpaying for underperformance.

Cost-effective alternatives that don’t compromise compliance

Achieving IFRS 16 compliance doesn’t require breaking the bank. Our Frame IFRS 16 Lease Management application offers a comprehensive yet cost-effective approach that ensures compliance while optimising resources.

Cloud-based solutions like Frame eliminate expensive hardware requirements and maintenance costs while providing accessibility from anywhere. The best part? You only pay for what you need. With modular functionality, you can start with core compliance features and add capabilities as your requirements evolve.

Another consideration is whether to manage IFRS 16 in-house or outsource. While keeping things in-house gives you maximum control, our solution provides the best of both worlds – we handle the complex calculations and reporting generation automatically, while you maintain ownership of your lease data. This hybrid approach has proven to be 30-40% more cost-effective than fully managed services for most organisations.

Real-world success story: How Company X cut IFRS 16 compliance costs by 40%

A European retail chain with 350+ leases across 12 countries was struggling with their previous IFRS 16 solution. Their finance team spent nearly 40 hours monthly on manual calculations, reconciliations, and report generation. During each audit cycle, they faced challenging questions about their lease liability calculations that required expensive consultant support.

After implementing Frame, they experienced immediate improvements. The implementation took just 8 weeks, including data migration and training. The automated calculations and reconciliation reports eliminated calculation errors and reduced month-end processing time by 75%. The clear audit trail and comprehensive documentation meant their next audit proceeded without a single IFRS 16 query from auditors.

Most impressively, their total compliance costs fell by 40% within the first year. The finance team now spends their time analysing lease data for cost-saving opportunities rather than struggling with compliance. They’ve identified over €200,000 in potential lease optimisation savings – a benefit they never anticipated when they first sought a more efficient IFRS 16 solution.

IFRS 16 compliance doesn’t have to be complicated or expensive. With the right solution, like our Frame IFRS 16 Lease Management application, you can turn a compliance challenge into an opportunity for greater financial visibility and control.