The education sector in Australia and New Zealand is undergoing rapid transformation. With increasing complexities in asset leasing arrangements, many childcare centres, schools, universities, and other educational institutions face a growing need for efficient lease management and compliance with the current accounting standards, such as IFRS 16 (AASB 16).
Education providers often maintain diverse lease portfolios, with agreements ranging from simple arrangements for classrooms and computer labs to more complex leases for specialised facilities and research equipment. In addition, education lease portfolios may involve multiple stakeholders. This makes lease accounting a complex and time-consuming task, especially when dealing with facilities, vehicle fleets, and warranties of fitness. Complying with IFRS 16, however challenging, is important for the education sector because it provides greater transparency and accountability around lease accounting, especially because generally public funding is involved.
Whether your organisation is an early childhood centre, school, college, or university, effective lease administration is crucial for maintaining smooth operations and optimising your financial resources. In this article, we have compiled a number of best practices that can help institutions in the education sector overcome lease management challenges and navigate the complexities of lease accounting. These will help you identify the main areas to work on and make you better equipped to manage your leases efficiently and achieve compliance.
Centralised lease portfolio
Centralising lease information by using a cloud-based solution is helpful for maintaining data accuracy, simplifying financial reporting, improving strategic decision-making, and reducing the risk of errors. It is best to start with gathering your lease portfolio and thoroughly reviewing each lease agreement to ensure that all leases are correctly documented and that your institution is meeting its obligations. Pay attention to rent payments, maintenance responsibilities (e.g., who is responsible for repairs and upkeep), and any clauses related to lease extensions or early termination. It is also important to identify any agreements that might be missing from your records, locate them and add them to your centralised database.
Facility management
Well-maintained and efficient facilities create an optimal learning environment for students, enhancing their overall educational experience. Additionally, proper facility management ensures the safety and security of students and staff, addressing potential hazards promptly. Effective facility management could also contribute to cost savings by optimising energy usage and maintenance expenditures, allowing educational institutions to allocate resources to educational programs and initiatives. A well-managed facility can positively impact the institution's reputation, attracting both students and talented educators. Once you have collected and organised all lease related documents for your facilities, it can be helpful to appoint an individual (or establishing a team) responsible for overseeing compliance, renewals or negotiations. You can also consider investing in lease management and lease accounting software to streamline lease tracking, payments, and reporting.
Vehicle fleet management
A well-managed fleet ensures the timely and secure transportation of students, staff, and resources, enhancing the overall quality of education. Vehicle management helps optimise maintenance schedules, reducing downtime and unexpected repair costs. Lastly, efficient fleet management contributes to sustainability goals by reducing fuel consumption and emissions, aligning with the growing emphasis on environmental responsibility within educational institutions. Maintain a a detailed inventory of your institution's vehicle fleet, as well as records of regular vehicle inspections and warranty of fitness checks. Regularly audit vehicle lease agreements to ensure accurate billing and compliance with the terms. Finally, track upcoming fitness inspections and regular maintenance to avoid lease violations and keep vehicles in top condition.
Warranty of fitness
In an environment where the well-being of students, educators, and staff is paramount, having equipment and facilities that meet fitness standards guarantees a conducive learning and working environment. Warranty of fitness helps ensure the safety, functionality, and reliability of equipment and facilities used for educational purposes. Compliance with warranties of fitness helps prevent unexpected breakdowns or accidents, reducing disruptions to education and potential legal liabilities. It also allows educational institutions to allocate their resources efficiently by budgeting for necessary maintenance and replacements, ultimately supporting the smooth operation of educational programs. Maintaining a notification system can help track warranty expiration dates and monitor when warranties of fitness are due for equipment and facilities.
Compliance and reporting
Stay updated with the latest lease accounting standards relevant to your jurisdiction and organisation. For example, the introduction of IFRS 16 (AASB 16) has brought significant changes in the way leases are accounted for as it requires lessees to recognise most leases on the balance sheet, except for short-term and low-value leases. Ensure that your accounting practices align with the standards to maintain financial transparency and compliance. Adhering to accounting standards ensures accurate reporting and avoids financial misstatements or penalties. To simplify compliance, use a lease accounting software solution. Reliable cloud-based lease accounting software, such as Nomos One, can help to automate many of the tasks involved in IFRS 16 lease accounting, making the process more efficient and accurate.
By implementing these best practices, finance professionals and accountants in the education sector can help to ensure that their organisation's lease portfolio and lease accounting records are complete, accurate and compliant with IFRS 16. It may also prove beneficial to consult with a lease accounting expert if you have any questions or concerns about IFRS 16 lease accounting.
Looking to gain insights into simplifying IFRS 16 compliance and enhancing financial transparency? Download our free IFRS 16 Checklist for the education sector!
