That’s why Q3 is the perfect cleanup month for IFRS 16

September is the best month for a cleanup. We’re entering autumn, and things are often a bit calmer now than they will be in a couple of months – with both Christmas and the year-end closing ahead. So take the opportunity to bring everything up to date: make the necessary adjustments and extensions, and add new contracts to catch up. That way, there will also be less to do once the year-end closing arrives.

Ahead of the year-end closing

Ahead of the year-end closing, companies reporting under IFRS 16 need to ensure that all accounting is accurate. This includes reviewing which contracts are approaching their end date. Do any property leases need to be reassessed? Is there anything that should be corrected or updated?

– This work in itself isn’t particularly difficult, but it often becomes stressful since it coincides with everything else related to the year-end closing. By addressing it now, in September, you can work with much greater peace of mind, says Richard Nilsson, IFRS 16 expert.

A practical checklist for IFRS 16 reporting

To make the year-end closing smoother, you can already start checking off the following:

• Remind colleagues to submit their contracts and contract amendments on time, so you don’t have to chase them in December.
• Ensure that no documents are missing.
• Record any new contracts entered into during the year that have not yet been registered.
• Make sure contracts that ended before their scheduled expiry are recorded as early terminations.
• Extend any contracts that have expired on schedule but are still in use (such as vehicle leases) to avoid them being mistakenly derecognized.
• Review your property lease agreements and update, extend, or adjust those that require changes. It is best to do this several months before expiry, as waiting too long may result in misleading reporting, with assets and liabilities understated. Pay special attention to your largest assets.
• Property lease agreements that do not require changes but are subject to indexation will be automatically reassessed if they are correctly registered, and therefore do not need to be handled manually.
  
  

Why Q3 is the best time

By completing this work in Q3, you’ll only need to add any Q4 changes when the year-end closing draws near. That way, the year-end will feel more like a regular quarter-end and be much easier to handle, Richard explains.

He concludes:

It doesn’t really matter whether you reassess the property leases in Q3 or Q4. The difference is that in Q3, you actually have the time – and that time is invaluable when it comes to closing out the year.

Click here to download the Q3 checklist for IFRS 16.