Lease Accounting under IFRS16 with SAP RE-FX

 


Thanks to the necessary SAP adaptions, PORR Oevermann GmbH complies with the new IFRS16 Lease Accounting rules

Like a lot of other firms that lease a major share of their vehicles and machines, also PORR Oevermann GmnH was confronted with the new IFRS 16 Lease Accounting rulings published by the International Accounting Standards Board (IASB). 

From January 1st, 2019 this meant a new way of reporting but more importantly a new way of working. PORR Oevermann chose PIKON to support the process of adapting their SAP system to make it compliant with the IFRS 16 Lease Accounting rules. For many years already, PIKON has supported PORR Oevermann with the optimization and implementation of their financial and controlling processes in SAP ERP. Because of this long-term partnership, PORR Oevermann asked PIKON to implement the IFRS16 Leasing transformation in their SAP ECC system.

After a thorough analysis, we agreed on the SAP RE-FX (Flexible Real-Estate Management) solution to implement a central, integrated lease contract management tool. The project was characterized by a hands-on involvement of the business users and a requirement to find a solution within the accounting and IT framework of the corporate (PORR) group.

About PORR Oevermann GmbH

For more than 110 years, PORR Oevermann has been implementing complex construction projects in building and road construction. They use the most modern equipment in the industry and employ more than 760 competent employees. Since 2017, the PORR Oevermann Group has been a subsidiary of the Austrian construction company PORR AG, one of the largest construction groups in Europe.

The following companies are part of the PORR Oevermann GmbH in Münster:

  • PORR Oevermann Hochbau GmbH (locations: Münster, Gütersloh, Frankfurt, Dusseldorf)
  • PORR Oevermann Verkehrswegebau GmbH (locations: Münster / Dortmund, Düren, Osnabrück / Gütersloh, Berlin, Eisenhüttenstadt)
  • CMG Gesellschaft für Baulogistik GmbH (location: Münster)

  

Why PORR Oevermann GmbH needed to adapt its SAP system to comply with the IFRS16 Leasing rules

In 2016, the International Accounting Standards Board (IASB) issued IFRS 16, replacing the in 2001 adapted IAS 17 Leasing rules. IFRS 16 is effective for annual reporting periods beginning on or after 1st January 2019.

With IFRS 16, it is no longer required to treat financial and operational leases differently from an accounting perspective and therefore this new leasing standard eliminates nearly all “off-balance” sheet accounting for leases. The goal of the new Lease Accounting rules is to increase transparency and to enable the users of financial statements to assess the impact of their organization’s leases on the financial position and cash flow directly from its balance sheet. To meet that objective, a lessee should recognize assets and liabilities arising from a lease.

"The competence of PIKON in combination with our own competence led to a successful realization of this project. Strong points were the short response times and the strong commitment of PIKON to the solution and the cooperation with our team."

Detlev Spross, Head of Finance/Accounting at PORR Oevermann GmbH 

How PIKON made PORR Oevermann’s SAP ERP system compliant with the new IFRS 16 Lease Accounting requirements

In order to implement the required functions in the PORR Oevermann organization, PIKON started this project with an in-depth analysis of the existing leasing and accounting process. This was followed by the design, implementation, testing and training of the new leasing and accounting process. After the Go-Live, we supported  the organization until the process and the functions were stable.

The SAP solution for lease contract management is based on the SAP Flexible Real Estate module (SAP RE-FX), which is integrated with SAP FI, CO and AA. It is important to know that it’s not necessary to implement and define the entire SAP RE-FX module. It is possible to only implement the SAP RE-FX Contract Management part and its accounting integration.

How SAP RE-FX makes your SAP system compliant with the new IFRS 16 Leasing rules

SAP RE-FX is a complete contract management solution. It enables you to set up different types of contracts, manage the business partners of your contract in the tool, keep track of critical dates in the contract life time and manage the contract conditions. This is all managed in a central contract database, so all involved parties in the organization will work on the same contract data. In this solution, the lease contract could be valuated according to the local HGB and the IFRS 16 valuation. For this, we could rely on the Multi-GAAP accounting principle of SAP RE-FX.

A big plus of the SAP RE-FX module is the direct SAP FI/CO integration. The module calculates payments, depreciations and the present value. Based on these calculations, postings are made directly in the SAP FI and SAP CO modules.

 

Challenges and Results

During this project for making the PORR Oevermann SAP ECC system compliant with the IFRS 16 Leasing rules, we faced the following challenges:

  • Getting to grips with the technical possibilities of the SAP RE-FX module
  • Keep track and implement the new developments in the area of accountancy but also from IT-perspective. The last showed in the number of OSS-notes implemented.
  • The posting rules for the business cases were not always obvious and had to be discussed with the local and the group accountant
  • Since the SAP Flexible Real-Estate Management module (SAP RE-FX) had not been used before at PORR Oevermann, we had to train the end-users from scratch and gradually get them familiar with the new functions
  • A harmonization with the accounting policy and procedures within the corporate PORR group demanded extra coordination

The result was not only a smooth and reliable process for leases according to the IFRS 16 standards, but more importantly also the ownership of the new business function in the PORR Oevermann organization and the know-how of the individual clerks to fully operate the tool and use its potential.