Optimization of the internal management of leases subject to IFRS16

Challenge

An important European insurance group, in the context of the optimization of accounting processes, has decided to introduce in its technological platform the management of the IFRS16 principle which, starting from 2019, has replaced IAS17 in the discipline of leasing for subjects who prepare financial statements according to international accounting principles.The IFRS16 standard establishes that, in order for a contract to be configured as a lease, the lessee must acquire the right to control the use of an identified asset. Against a leasing contract, the lessee must record an asset (Right of use asset) and a financial liability (Lease liability) in the balance sheet.It was therefore necessary:

• introduce asset management (extended to all types of assets, not just leased assets)
• introduce asset purchases to the purchasing process
• classify and manage leasing contracts

Solution

The management of the IFRS16 accounting principle was implemented through the standard SAP RE-Fx Leasing Accounting functionality.

Within the review of the asset purchase process, managed through a custom function created by the customer, the standard functions of asset management and purchase of leased assets have been integrated.

The asset model, created to meet the customer’s accounting needs, provides for the subdivision of individual assets according to splitting criteria related to the use of the asset.

Relevant activity within the project was the data migration phase, during which the standard RE-Fx database was adapted to the customer’s asset model.

During the project, system patching was also carried out by implementing SAP OSS Notes in order to adapt the environment to the latest functionalities for managing the IFRS16 functionality.